Pensions Committee
Date: Tuesday 8 September 2015
Time: 9:30am
Venue: Edwards Room, County Hall, Norwich
Membership
Members Co-opted Members
Mr J Law Mr J Fuller Mr S Morphew Mr A Waters Mr D Ramsbotham Mr M Storey Miss J Virgo
Member Representative
Mr S Aspin
Under the Council’s protocol on the use of media equipment at meetings held in public, this meeting may be filmed, recorded or photographed. Anyone who wishes to do so must inform the Chairman and ensure that it is done in a manner clearly visible to anyone present. The wishes of any individual not to be recorded or filmed must be appropriately respected.
For further details and general enquiries about this Agenda please contact the Committee Officer: Tim Shaw on 01603 222948 or email timothy.shaw@norfolk.gov.uk
1
A g e n d a
1. To receive apologies – (please note that owing to the Trustee Status of this Committee, substitute members are not allowed)
2. Minutes Page 5
To confirm the minutes of the meeting held on 8 July 2015.
3. Members to Declare any Interests
If you have a Disclosable Pecuniary Interest in a matter to be considered at the meeting and that interest is on your Register of Interests you must not speak or vote on the matter.
If you have a Disclosable Pecuniary Interest in a matter to be considered at the meeting and that interest is not on your Register of Interests you must declare that interest at the meeting and not speak or vote on the matter.
In either case you may remain in the room where the meeting is taking place. If you consider that it would be inappropriate in the circumstances to remain in the room, you may leave the room while the matter is dealt with.
If you do not have a Disclosable Pecuniary Interest you may nevertheless have an Other Interest in a matter to be discussed if it affects:
- your well being or financial position - that of your family or close friends - that of a club or society in which you have a management role - that of another public body of which you are a member to a greater extent than others in your ward.
If that is the case then you must declare such an interest but can speak and vote on the matter.
4. To receive any items of business which the Chairman decides should be considered as a matter of urgency
2
5. Exclusion of the Public (Items 6-11 only)
The committee is asked to consider excluding the public from the meeting under section 100A of the Local Government Act 1972 for consideration of the items below on the grounds that they involve the likely disclosure of exempt information as defined by Paragraph 3 of Part 1 of Schedule 12A to the Act, and that the public interest in maintaining the exemptions outweighs the public interest in disclosing the information.
The committee will be presented with the conclusion of the public interest test carried out by the report author and is recommended to confirm the exclusion.
6. Investment Strategy & Structure Changes – Implementation Page 16 Update
Joint Report by the Executive Director of Finance, Head of Pensions and Hymans Robertson (Hymans).
7. Investment Performance Update by Hymans Robertson Page 24
Booklet enclosed for Members of the Committee.
8. Henderson High Alpha Gilts Page 38
Joint Report by the Executive Director of Finance, Head of Pensions and Hymans Robertson (Hymans)
9. Fund Managers Report and Presentation
• Fidelity Page 44
• Wellington
Booklets enclosed for Members of the Committee.
10. Securities Fraud Class Action Page 67
Joint Report by the Executive Director of Finance and Head of Pensions
11. Exempt Minutes Page 71
To confirm the exempt minutes of the meeting held on 8 July 2015.
12. Update on Statement of Investment Beliefs Page 75
Joint Report by the Executive Director of Finance, Head of Pensions and Hymans Robertson (Hymans).
3
13. Administration Report Page 81
Report by the Executive Director of Finance and Head of Pensions.
Including updates on:
• Summary of Highlights and Recommendations • Governance • Communications • Pensions Reform • Collaborative Working / Value for Money • Awards and Achievements • Guaranteed Minimum Pension Reconciliation • Changes to taxation of pensions savings and contracting out • Extension of the ‘Tell us once’ service to the LGPS • Year-end • Banking Transition • Knowledge and Skills • CIPFA Benchmarking • Freedom of Information Act (FoIA) • Club Vita Update • Admission Agreements – Edwards & Blake (Cherry Tree Academy & Wymondham High Academy) • Update on Bulk Transfers • Representation on Behalf of the Fund
14. Draft Pension Fund Annual Report and Accounts Page 141
Joint Report by the Executive Director of Finance and Head of Pensions
15. Corporate Governance and Shareholder Engagement Page 255
Report by the Executive Director of Finance & Head of Pensions.
Chris Walton Head of Democratic Services County Hall Martineau Lane Norwich NR1 2DH
Date Agenda Published: 28 August 2015
If you need this report in large print, audio, Braille, alternative format or in a different language please contact the Tim Shaw on 0344 800 8020 or 0344 800
8011 (textphone) and we will do our best to help.
4 Pensions Committee
Minutes of the meeting held on Wednesday 8 July 2015 commencing at 9:30 am at County Hall, Norwich
Present:
Mr S Morphew (Chairman) Mr S Aspin Mr J Dobson Mr J Fuller Mr D Ramsbotham Mr M Storey Mr A Waters
Officers Present:
Simon George Executive Director of Finance Glenn Cossey Chief Investment Manager Nicola Mark Head of the Pension Fund Alex Younger Investment and Actuarial Services Manager
Jo Quarterman Norfolk Pension Fund Project and Development Manager Adrian Thompson Chief Internal Auditor Tim Shaw Committee Officer
Others Present:
William Marshall Investment Adviser, Hymans Robertson
Alistair Dryer Aviva Investors
Sarah Emberson Aviva Investors
Henry Boucher Sarasin & Partners
Harry Talbot-Rice Sarasin & Partners
1. Election of Chairman
Mr. S. Morphew was elected as Chairman of the Pensions Committee for the ensuing year.
(Mr S Morphew in the chair)
5 2. Election of Vice-Chairman
Mr. A. Waters was elected as Vice-Chairman of the Pensions Committee for the ensuing year.
3 Apologies
An apology for absence was received from Miss J Virgo.
4 Minutes
4.1 The minutes of the previous meeting held on 24 February 2015 were confirmed as a correct record and signed by the Chairman.
5. Declarations of Interest
The following declarations of interest were received:
• Mr Morphew declared an “other interest” in that his wife was in receipt of a pension from the scheme. • Mr Ramsbotham declared an “other interest” as he had investments of more than £25,000 with Fidelity, one of the Fund Managers. • Mr Waters declared an “other interest” because his wife was a member of the scheme. • Mr Aspin declared an “other interest” as he had investments with Standard Life and personal membership of the scheme as an employee of a scheme employer. • Mr Fuller declared an “other interest” as he had investments of more than £25,000 with Sarasin and Partners, one of the Fund Managers.
6. Matters of Urgent Business/Agenda Order
6.1 There were no matters of urgent business.
6.2 Please note that these minutes have been placed in the order in which the items appear on the agenda so as to allow for easier cross referencing.
7 Exclusion of the Public (Agenda Items 8-16 only)
7.1 The Committee was asked to consider excluding the public from the meeting under Section 100A of the Local Government Act 1972 for consideration of the items below on the grounds they involved the likely disclosure of exempt information as defined by paragraph 3 of Part 1 of the Schedule 12A to the Act, and the public interest in maintaining the exemption outweighed the public interest in disclosing the information.
6 7.2 Paragraph 3 stated “information relating to the financial or business affairs of any particular person” (including the Authority holding the information).
Having applied the “Public Interest Test” it was recommended the Pensions Committee confirm the exclusions listed below:-
7.3 Item 8- Hymans Robertson Member Briefing on the Investment Issues to be considered at this meeting
This report contained commercially sensitive information related to the performance of third party individual fund management companies which if in the public domain could have a detrimental impact on the companies’ commercial revenue and consequently adverse impact on Pension Fund Performance.
7.4 Item 9-Investment Strategy & Structure Changes – Implementation Update
This report contained commercially sensitive information related to the performance of third party individual fund management companies which if in the public domain could have a detrimental impact on the companies’ commercial revenue and consequently adverse impact on Pension Fund Performance.
7.5 Item 10- Investment Performance Update by Hymans Robertson
This report contained commercially sensitive information related to the performance of third party individual fund management companies which if in the public domain could have a detrimental impact on the companies’ commercial revenue and consequently adverse impact on Pension Fund Performance.
7.6 Item 11- Review of Global Equity Mandate on 3rd Anniversary of Mandate Change
This report contained financial, business and commercial information including details about third party company operations, including details of individual stock "buy and sell" activity which could significantly weaken their position in a competitive environment by revealing this activity to competitors.
Inappropriate disclosure would or would be likely to prejudice their interests which may expose the Norfolk Pension Fund (Norfolk County Council) to legal action in the future.
7.7 Item 12- Review of Absolute Return Bond Allocation: Goldman Sachs Asset Management and M&G Mandates
7 This report contained financial, business and commercial information including details about third party company operations, including details of individual stock "buy and sell" activity which could significantly weaken their position in a competitive environment by revealing this activity to competitors.
Inappropriate disclosure would or would be likely to prejudice their interests which may expose the Norfolk Pension Fund (Norfolk County Council) to legal action in the future.
7.8 Item 13- Review of Property Mandate – Aviva Investors
This report contained financial, business and commercial information including details about third party company operations, including details of individual stock "buy and sell" activity which could significantly weaken their position in a competitive environment by revealing this activity to competitors.
Inappropriate disclosure would or would be likely to prejudice their interests which may expose the Norfolk Pension Fund (Norfolk County Council) to legal action in the future.
7.9 Item 14- Fund Managers Reports and Presentations • Aviva Investors • Sarasin & Partners
These reports contained financial, business and commercial information including details about third party company operations, including details of individual stock "buy and sell" activity which could significantly weaken their position in a competitive environment by revealing this activity to competitors.
Inappropriate disclosure would or would be likely to prejudice their interests which may expose the Norfolk Pension Fund (Norfolk County Council) to legal action in the future.
7.10 Item 15-Novation of Existing Admission Agreement
This report contained financial, business and commercial information including details about third party company operations, including details of individual stock "buy and sell" activity which could significantly weaken their position in a competitive environment by revealing this activity to competitors.
Inappropriate disclosure would or would be likely to prejudice their interests which may expose the Norfolk Pension Fund (Norfolk County Council) to legal action in the future.
8 7.11 Item 16-Exempt Minutes of the Previous Meeting
These minutes contained commercially sensitive information related to the performance of third party individual fund management companies which if in the public domain could have a detrimental impact on the companies’ commercial revenue and consequently adverse impact on Pension Fund Performance.
7.12 RESOLVED
That the above items be excluded from public disclosure by virtue of paragraph 3 of Part I of Schedule 12A to the Local Government Act 1972 and the text applied above, confirming that the public interest in maintaining the exemption out-weighted the public interest in disclosing the information.
*****
Public Summary of the Exempt Minutes (Agenda Items 8-16 only).
8 Hymans Robertson Member Briefing on the Investment Issues to be considered at this meeting
8.1 The Committee received a detailed booklet (containing exempt information) by Hymans Robertson (Hymans) on the investment issues to be considered at this meeting. The booklet explained why it is important for the Committee maintain and develop an investment strategy that is based on clearly defined long-term objectives and good governance.
8.2 RESOLVED
That the Committee note the briefing.
9. Investment Strategy & Structure Changes – Implementation Update
9.1 The Committee received a joint report (containing exempt information) by the Executive Director of Finance, the Head of Pensions and Hymans Robertson (Hymans) on the status of each of the changes and actions on the Fund’s investment strategy and structure that was agreed by the Committee in December 2014, including an implementation plan.
9.2 RESOLVED
That the Committee:
1. Note the contents of the report.
9 2. Agree to receive regular update reports on the implementation plan at future meetings.
10 Investment Performance Update by Hymans Robertson
10.1 Members received a detailed booklet (containing exempt information) that had been circulated in advance of the meeting. The Investment Advisor summarised the main issues including the investment performance of the previous quarter.
10.2 The Chairman thanked Hymans Robertson for their presentation.
10.3 RESOLVED
That the Committee note the report.
11 Review of Global Equity Mandate on 3rd Anniversary of Mandate Change
11.1 The Committee received a report (containing exempt information) that reviewed the global equity mandate managed by one of the Pension Fund Managers.
11.2 RESOLVED
That the Fund Manager mentioned in the report be retained to manage their existing mandate, subject to certain conditions being met.
12 Review of Absolute Return Bond Allocation: Goldman Sachs Asset Management and M&G Mandates
12.1 The Committee received a report (containing exempt information) that asked the Committee to review the Absolute Return Bond Allocation of Goldman Sachs Asset Management and M&G Mandates.
12.2 RESOLVED
That the Committee agree to the detailed changes in the Absolute Return Bond Allocation as set out in the report.
13 Review of Property Mandate – Aviva Investors
13.1 The Committee received a report (containing exempt information) that reviewed the indirect property mandate managed by Aviva Investors (Aviva).
13.2 RESOLVED
That the Committee note the contents of the report and consider its
10 content alongside the presentation by Aviva Investors (at item 14 below).
14 Item 14- Fund Managers Reports and Presentations • Aviva Investors • Sarasin & Partners
14.1 Two representatives from Aviva Investors presented a detailed booklet that had been circulated to Members in advance of the meeting. The representatives from Aviva Investors introduced the booklet, summarised the main issues, and responded to detailed questions by the Members.
14.2 Two representatives from Sarasin & Partners presented a detailed booklet that had been circulated to Members in advance of the meeting. The representatives from Sarasin & Partners introduced the booklet, summarised the main issues, and responded to detailed questions by the Members.
14.3 The Chairman thanked Aviva Investors and Sarasin & Partners for their presentations.
14.4 RESOLVED
1. To note the presentations by the Fund Managers. 2. That a further review of progress within the Aviva mandate be undertaken by Committee in twelve months-time.
15 Novation of Existing Admission Agreement
15.1 The annexed report (15) by the Executive Director of Finance and Head of Pensions was received.
15.2 The report (containing exempt information) outlined an application for a novation of an existing Admission Agreement with the Pension Fund which would be sealed under Chief Officer powers by the Executive Director of Finance, subject to the satisfactory completion of the legal work on behalf of the fund by NPLaw and completion of the novation of the contract for services by the Scheme Employer.
15.3 RESOLVED
That the Committee note the application for novation of an existing Admission Agreement with the Pension Fund.
16 Exempt Minutes of the Previous Meeting
16.1 The exempt minutes of the Pensions Committee meeting held on 24 February 2015 were agreed as a correct record and signed by the
11 Chairman.
17 Statement of Investment Beliefs
17.1 The annexed joint report (17) by the Executive Director of Finance, Head of Pensions and Hymans Robertson (Hymans) was received.
17.2 It was noted that the investment beliefs documented in the report were a first attempt at putting together a formal framework to document the beliefs that have developed and informed the investment strategies and decisions that have been made over the years by the Pensions Committee. Members were asked to email the Head of the Pensions Fund with any detailed comments that they might have on the formal documentation of these beliefs, which the Committee would be asked to approve at its meeting in September 2015.
17.3 In the meantime further work would be undertaken into how the investment beliefs could be developed into key statements and hyperlinked to other documents on the Pensions Fund website.
17.4 It was noted that when they had been agreed by the Committee the investment beliefs and the hyperlinks would need to be revisited on a regular basis to ensure that they remained appropriate.
17.5 RESOLVED
That the Committee be asked to approve a statement of investment beliefs for publication on the Norfolk Pension Fund’s website at its next meeting.
18 Responsible Investment and Stewardship Update
18.1 The annexed joint report (18) by the Executive Director of Finance, Head of Pensions and Hymans Robertson (Hymans) was received.
18.2 It was noted that as part of their Environmental, Social and Governance (ESG) considerations, the Pension Fund’s Investment Managers should review investee companies’ approaches to employee rights and the risks that arose from this and engage with companies where they believed there was room for improvement. This should be done on a global basis and reported on at least six-monthly.
18.3 It was suggested that when Fund Managers were presenting reports to the Committee that they should always be asked to explain how they are meeting the Fund’s Socially Responsible Investment Engagement Policy.
18.4 RESOLVED
12
That the Committee note the contents of the report.
19 New Scheme Governance Requirement (Local Pension Board)
19.1 The annexed report (19) by the Executive Director of Finance and Head of Pensions was received.
19.2 The Committee was updated on progress with the establishment of the Norfolk Pension Fund Local Pension Board, as required under the Local Government Pension Scheme (Amendment) (Governance) Regulations 2015. In Norfolk the Local Pension Board would be known as the Pensions Oversight Board.
19.3 RESOLVED
1. That the Committee note the contents of the report. 2. That Members of the Pensions Committee and Members of the Pensions Oversight Board will consider whether there is opportunity to share training opportunities where appropriate. 3. That the Committee place on record it’s thanks to Jo Quarterman, Norfolk Pension Fund Project and Development Manager, for all her hard work in helping to ensure that the composition and terms of reference of the Norfolk Pensions Oversight Board and its operational work were established in accordance with its constitution, and in preparing for the first meeting of the Board which would be held shortly.
20 Administration Report
20.1 The annexed report (20) by the Executive Director of Finance and the Head of Pensions was received.
20.2 The Committee received updates on: Governance, Communications, Procurement of Administration Software and Online Services, Norfolk Pension Fund – Administering Authority Pension Policy, Employer Policy Statements, Collaborative Working / Value for Money, LGPS National Insurance Database, Guaranteed Minimum Pension Reconciliation, Year-end, EY – Pension Fund Audit Plan, Banking Transition, Custodian Transition, Knowledge and Skills, Transitions Activity – Ministry of Justice (Probation) transfer to the Greater Manchester Pension Fund (GMPF) and funding of new absolute return bond mandates, Digital Norfolk Ambition – Rollout and Costing Update, Freedom of Information Act (FoIA), Statement of Investment Principles, Admission Agreement – Sentinel Leisure Trust, Admission Agreement – Konectbus, Update on Bulk Transfers and Representation on Behalf of the Fund.
20.3 The Committee noted that the Annual Report & Accounts for 2014-15
13 would be presented to the September meeting of Pensions Committee, prior to Audit Committee.
20.4 The Committee also noted that the forward plan included a paper to the December 2015 meeting on efficiency and value for money by way of context for the presentation and approval of the 2016-17 Pension Fund Budget in February 2016.
20.5 RESOLVED
That the Committee note the contents of this report, in particular:
1. The Administering Authority Pension Policy (Paragraph 5 of the report). 2. The update to the Statement of Investment Principles (Paragraph 18 of the report). 3. The Admission Agreement in respect of Sentinel Leisure Trust (Paragraph 19 of the report). 4. The Admission Agreement in respect of Konectbus (Paragraph 20 of the report). 5. The Pensions Committee Forward Plan (Paragraph 23 of the report).
21 Norfolk Audit Services Annual Internal Audit Report 2014-15 on the Norfolk Pension Fund
21.1 The annexed report (21) by the Executive Director of Finance was received.
21.2 RESOLVED
That the Committee approve the Pension Fund Annual Internal Audit Report for 2014-15 (Appendix A to the report), including the 2015-16 internal audit plan and the key messages that:
1. Based on an analysis of the audit work carried out and reports issued, the Executive Director of Finance could assure the Committee that the adequacy and effectiveness of the systems of internal control including the arrangements for the management of risk during 2014-15 was acceptable and was therefore considered sound. 2. Internal audit was adequate and effective during 2014-15 for the purpose of the latest regulations and standards. 3. The work of NAS for the year and the assurance provided assisted the Committee to reasonably assess the risk that the Financial Statements were not materially misstated due to fraud. The risks of Fraud and Corruption had been reviewed and planning and resources were considered adequate.
22 Risk Register
14
22.1 The annexed report (22) by the Executive Director of Finance & Head of Pensions was received.
22.2 RESOLVED-
That the Committee note the contents of the risk register.
The meeting concluded at 2.50 pm
Chairman
15 Report to Pensions Committee 8 September 2015 Item No 12
Statement of Investment Beliefs Joint Report by the Executive Director of Finance, Head of Pensions and Hymans Robertson (Hymans)
1. Background
1.1 During training and strategy meetings with Hymans in the last year, and as part of ongoing investment discussions, the Committee has given consideration to its investment beliefs and how they support good governance and investment decision- making.
1.2 At the last meeting of Pensions Committee the Committee considered a paper on Investment Beliefs. At the Committee it was agreed that the paper presented broadly reflected their investment beliefs, subject to the following comments;
• There was a preference to have four or five headline beliefs with a number of subsidiary beliefs beneath these.
• The sub-beliefs should make reference to:
1. The Funding Strategy Statement 2. The Fund’s future changing dynamics e.g. different funding and cash flow positions of the underlying employers. 3. (Further reference to) Environmental, Social and Governance matters.
1.3 Attached at Appendix A is an updated version of Hymans paper from the last Committee, reflecting the comments provided by members of the Committee.
1.4 After this paper is considered at the September Committee and subject to any further comments the Committee may have, officers will work with Hymans to finalise a version for publication on the Fund’s website.
2. Resource Implications
2.1 There are no direct resource implications.
3. Other Implications
3.1 Equality Impact Assessment (EqIA): There are no issues relevant to equality in this report.
3.2 Any Other Implications: Officers have considered all the implications which members should be aware. Apart from those listed in the report (above), there are no other implications to take into account.
1 75 4. Section 17 – Crime and Disorder Act
4.1 There are no implications under the Crime and Disorder Act.
5. Recommendation
5.1 It is recommended that, subject to any further comments the Committee may have, the Committee approve the adoption of the investment beliefs and preparation of a version for publication on the Fund’s website.
Background Papers
Appendix A: Hymans Robertson Report “Investment beliefs – September 2015”
Officer Contact
If you have any questions about matters contained in this paper please get in touch with:
Nicola Mark Tel no: 01603 222171 email address: [email protected]
If you need this Report in large print, audio, Braille, alternative format or in a different language please contact Tim Shaw on 0344 800 8020 or 0344 800 8011 (textphone) and we will do our best to help.
2 76 Appendix A NORFOLK PENSION FUND
HYMANS ROBERTSON LLP
Investment beliefs – September 2015 Introduction This paper is addressed to the Pensions Committee (“the Committee”) of the Norfolk Pension Fund (“the Fund”). It follows up on the Committee’s July 2015 investment beliefs discussions. This paper should not be released or otherwise disclosed to a third party except as required by law or with our prior written consent, in which case it should be released in its entirety. We accept no liability to any third party unless we have expressly accepted such liability in writing.
Background As a reminder, investment beliefs provide a framework for all investment decisions that pension trustees make. There is no single right answer when it comes to setting beliefs, with each scheme’s beliefs being unique, depending on their specific circumstances and their trustees’ views. A scheme’s beliefs should be revisited on a regular basis to ensure they remain appropriate. It is also important that these beliefs are reflected in the underlying portfolio of assets and in the scheme’s ways of working.
In July 2015 the Committee discussed investment beliefs, including our paper on this subject. Following discussion, the Committee agreed that our paper broadly reflected their investment beliefs, subject to the following comments:
There is a preference to have four or five headline beliefs with a number of subsidiary beliefs sitting beneath these.
The sub-beliefs should make some reference to:
o The Fund’s Funding Strategy Statement.
o The Fund’s future changing dynamics e.g. different funding and cashflow positions of the underlying employers.
o (further reference to) Environmental, Social and Governance matters.
Over time there should be a desire to build a bank of supporting evidence behind each belief and build a clear map for how they are translated into the Fund’s investment structure.
Update and next steps Attached is an updated version of our July paper, reflecting your comments. At your September meeting, we will gather your thoughts on this updated document. Taking on board your comments and feedback, we will work with the Officers to prepare a finalised set of beliefs that will be published on the Fund’s website.
We will also work with the Officers to build a plan for gathering the bank of evidence and the plan for mapping the Fund’s investment beliefs with its underlying investments. We anticipate discussing this further with you during the 2016 funding and investment discussions.
We look forward to discussing this paper with you in September 2015
William Marshall Partner Paul Potter, Partner
For and on behalf of Hymans Robertson LLP
August 2015
77 NORFOLK PENSION FUND
HYMANS ROBERTSON LLP
Proposed investment beliefs for publication The Committee of the Norfolk Pension Fund (“the Fund”) strongly believe that well governed pension schemes benefit from improved outcomes over the long-term. They also take the view that a clear set of investment beliefs can help achieve good governance by providing a framework for all investment decisions.
The Committee has four headline beliefs, with a number of sub-beliefs sitting underneath these headlines. Details of the Fund’s investment beliefs are provided in this document. All beliefs will be reviewed on an ongoing basis to ensure that they remain appropriate.
Chart 1: Headline beliefs
•Effective governance •Strategic asset allocation is and decision-making a key determinant of risk structure will add and return, and thus is value to the Fund over typically more important the long-term than manager or stock selection. Governance Strategic
•Structural matters can •Effective management of improve efficiency, but Responsible Structural financially material ESG implementation investment risks should enhance the approach must be Fund's long-term aligned to the Fund's outcomes governance resource
Governance Clear and well defined objectives are essential to reflect the Fund’s long-term1 strategic direction of travel and to help build a plan for achieving these objectives.
The Committee supports long term investing as a means of enhancing returns, reducing transaction costs and encouraging improved governance at a corporate level.
Fees and costs matter. It is important to get the best value from the Fund’s providers and to understand and minimise, as far as possible, any cost leakages from the investment process.
The Fund believes in full and transparent disclosure of investment and administration costs. It recognises the importance of adequate resources to operate effective financial reporting and controls and effective and efficient provision of scheme administration and related activities. It recognises the importance of these functions in facilitating and demonstrating good oversight and governance to multiple stakeholders.
The Fund should maintain access to skilled, high quality internal and external professional advice to support effective implementation and management of its investment and administration activities.
1 The Committee view long-term as typically being greater than 15 years, medium-term typically being between 3-15 years and short-term being less than 3 years
78 NORFOLK PENSION FUND
HYMANS ROBERTSON LLP
Strategic Clear investment objectives are essential. Return and risk should be considered relative to the Fund’s liabilities, funding position and contribution strategy. The information in the Fund’s Funding Strategy Statement should be taken into consideration when setting investment strategy.
In most cases, the strength of employers’ covenants allows the Fund to take a long term view of investment strategy. However, it is appreciated there will be certain employers when a short-term to medium-term horizon is more appropriate.
Ongoing risk assessment is essential. This assessment can take many forms including (but not limited to):
to understand progress relative to the long-term plan at a whole Fund level,
the implications of the increasing diversity and maturity of the Fund’s underlying employers, including the impact on the Fund’s net cashflow position, and;
the risks associated with the Fund’s managers and counterparties.
Structural There exists a relationship between the level of investment risk taken and the rate of expected investment return. However, for certain investments, it may take a long period of time for this relationship to be established.
Markets are not always efficient, which can create opportunities for investors. For the majority of such opportunities, the Fund’s investment managers are likely to be in the best position to exploit them.
Equities are expected to generate superior long-term returns relative to government bonds.
Alternative asset class investments are designed to further diversify the Fund and improve its risk-return characteristics. A premium return (net of fees) is required for any illiquid investments.
Currency volatility increases the Fund’s risks and therefore should be managed.
Active management can add value but it is not guaranteed. If accessing active management, it is important that a manager’s philosophy and processes are well defined, fees are good value and the manager is given an appropriate timescale to achieve their performance target.
Passive management has a role to play in the Fund’s investment structure, most notably in more efficient investment markets.
Transitions between managers and asset classes can result in considerable transaction costs and market risks. It is important such transitions are carefully managed.
79 NORFOLK PENSION FUND
HYMANS ROBERTSON LLP
Responsible investment Effective management of financially material environmental, social and governance (“ESG”) risks should enhance the Fund's long-term outcomes.
The Committee prefer to take a holistic approach to ESG matters, rather than to focus on single issues.
Proactive engagement with the companies in which the Fund invests is the most effective means of understanding and influencing their social, environmental and business policies.
Investment managers should sign up and comply with the Financial Reporting Council’s Stewardship Code. If they are not signed up, there should be a clear response as to why not.
The Fund’s investment managers should review investee companies’ approaches to employee rights and the risks within this. Managers should engage with companies where they believe there is room for improvement. This should be done on a global basis and reported on at least six-monthly. The Committee will hold the managers to account on the level and quality of their engagement.
General Risk Warning: Please note the value of investments, and income from them, may fall as well as rise. This includes equities, government or corporate bonds, and property, whether held directly or in a pooled or collective investment vehicle. Further, investments in developing or emerging markets may be more volatile and less marketable than in mature markets. Exchange rates may also affect the value of an overseas investment. As a result, an investor may not get back the amount originally invested. Past performance is not necessarily a guide to future performance.
80 Report to Pensions Committee 8 September 2015 Item No 13
Administration Report
Joint Report by the Executive Director of Finance and Head of Pensions
Contents 1. Background 2. Summary of Highlights and Recommendations 3. Governance 4. Communications 5. Pensions Reform 6. Collaborative Working / Value for Money 7. Awards and Achievements 8. Guaranteed Minimum Pension Reconciliation 9. Changes to taxation of pensions savings and contracting out 10. Extension of the ‘Tell us once’ service to the LGPS 11. Year-End 12. Banking Transition 13. Knowledge and Skills 14. CIPFA Benchmarking 15. Freedom of Information Act (FoIA) 16. Club Vita Update 17. Monitoring Employer Pay Increases (2013 Valuation assumptions) 18. Admission Agreements – Edwards & Blake (Cherry Tree Academy & Wymondham High Academy) 19. Update on Bulk Transfer Values in Progress 20. Representation on behalf of the Pension Fund 21. Norfolk Pension Fund Forward Plan 22. Other Implications
1 81 23. Section 17 – Crime and Disorder Act 24. Recommendations
Appendices Appendix A – Norfolk Pension Fund Governance Compliance Statement 2015 Appendix B – Active Member Sample Annual Benefit Statement 2015 Appendix C – Deferred Member Sample Annual Benefit Statement 2015 Appendix D – Hymans Robertson 60 Second Summary - Public Sector Exit Payment Cap Proposed Appendix E – Update on Bulk Transfer Values in Progress Appendix F – Representation on Behalf of the Fund Appendix G – Norfolk Pension Fund - Pensions Committee Forward Plan September 2015
2 82 1. Background
1.1 This report is a quarterly update for the Pension Committee on all operational and administration matters relating to the Fund.
2. Summary of Highlights and Recommendations
2.1 • Item 24.1 – Approval of Governance Compliance Statement as detailed in Item 18 • Item 24.2 – Noting of Admission Agreements – Edwards & Blake (Cherry Tree Academy & Wymondham High Academy) as detailed at Item 3.3
3. Governance
3.1 Change to Committee Membership
3.2 Councillor Jason Law has replaced Councillor John Dobson on Pensions Committee. This change has been reflected on the Pension Fund website at www.norfolkpensionfund.org and in publications (e.g. Governance Strategy Statement).
3.3 Governance Compliance Statement
3.4 In accordance with current regulations the Norfolk Pension Fund prepares and publishes a Governance Compliance Statement each year.
3.5 The latest version of the Pension Fund’s ‘Governance Compliance Statement’ (which measures compliance against best practice guidelines) is at Appendix A and will be published to DCLG once approved by Committee – Item 24.1 refers.
3.6 Pensions Oversight Board
3.7 The final membership of the Pensions Oversight Board has been confirmed as:
Chairman
Kevin McDonald Director of Pensions, Essex Pension Fund
Employer Representatives
David Hicks Diocese of Norwich Education and Academies Trust Cllr Chris Walker Poringland Parish Council Debbie Beck Norfolk County Council
Scheme Member representatives
John Harries Active / Deferred member Laurie Rainger Pensioner member Rachel Farmer Trade Union
3.8 The first meeting of the Pensions Oversight Board (POB) took place on Tuesday 14 July at the Norfolk Pension Fund offices at Lawrence House.
3 83 3.9 Following introductions and declarations of interests, the main focus of the first meeting was training and education. Members received information about the Local Government Pension Scheme generally and the Norfolk Pension Fund specifically, roles and responsibilities of board members, why the board is here and knowledge and skills. The Board also reviewed their Terms of Reference.
3.10 POB agreed that members would endeavour to attend at least one of the next two meetings of the committee (8 September and 7 December) in order to gain a clearer understanding of the issues discussed.
3.11 POB also agreed that members would bring ideas as to possible areas they would like to review to the next meeting.
3.12 Scheme Advisory Board
3.13 The Local Government Pension Scheme Advisory Board is a body required by Section 7 of the Public Service Pensions Act 2013. It is established to advise Government in respect of the LGPS, as well as to encourage best practice, increase transparency and coordinate technical and standards issues.
3.14 Currently an Interim Board is in place, pending the Ministers’ appointment of a Chair for the new Board.
3.15 The Interim Board is writing to all Chairs of LGPS Section 101 Pension Committees, along with Chief Executives, Chief Financial Officers and Councils to raise concerns about the pressures currently faced by scheme managers in delivering their existing and increasing regulatory responsibilities, and the obligation on authorities to ensure that sufficient resources are maintained to deliver the function (as these costs are met by the Fund there should be no impact on the Administering Authority); and the requirement for increasing transparency and accuracy in Pension Fund accounting (including recharges).
3.16 The Scheme Advisory Board have appointed KPMG to assist in developing and evaluating options for the greater separation between LGPS Funds and their host authorities for consideration, prior to potentially making recommendations to the Secretary of State.
4. Communications
4.1 With active and deferred scheme members
4.2 Annual Benefit Statements
4.3 End August regulatory deadline for publication
4.4 Despite not appearing in the consultation, the final new scheme regulations introduced a requirement for Funds to issue Annual Benefit Statements (ABS) by the end of August.
4.5 Despite best efforts, it is unlikely that most LGPS Funds will meet this deadline. The Scheme Advisory Board and the NAPF Local Authority Steering Group are formally writing to the regulator to advise them of this.
4 84 4.6 For the Norfolk Pension Fund this is as a result of a combination of factors arising from the implementation of the new scheme, including:
• 1st year end under the new scheme for all parties (including ourselves internally) dealing with annual returns under the new CARE scheme – so a very steep learning curve for all parties • timeliness of software development, testing, deployment, testing – but this is linked to availability of requirements • timeliness and accuracy of employer returns – but under the new scheme this is a very different requirement / process • employers reliance on their own payroll provider developments / testing
4.7 In addition:
• As a result of investing heavily in preparation with our employers we have received all our returns but they have required a significant investment of time and resource working with employers to validate and correct before being ready to process • We also – like many other Funds - had to migrate from AXISe to a new administration system in the past year which took up significant time and resource alongside implementing the new scheme (including supporting employers and scheme members) • Like all other Funds we have also seen significant overall increases in workloads faced by all funds (e.g. as a result of the rapid increase in employers) at a time when we face downward pressure on resources
4.8 Recognising early on that this deadline was unachievable, we advised all our scheme members (i.e. active and deferred) via letter in May (combined with correspondence about Local Pension Board) that we aimed to make their ABS details available online around the end of August and that their paper copy would follow on shortly thereafter. We will update this advice via our website as the timeline is confirmed.
4.9 The National Scheme Advisory Board is aware of the difficulties faced by the majority of Funds, many of whom are still working to gather and validate employer data, and is in discussion with the Pensions Regulator in respect of this deadline and its achievability within the LGPS. We await the outcome of this engagement.
4.10 Distribution of Annual Benefit Statements
4.11 This year’s Annual Benefit Statements will be posted to the home addresses of all scheme members (both active and deferred) in mid-October.
4.12 In addition to the personal statement of benefits, the booklets also include:
• A summary of benefits in the LGPS • Information about the implications of opting out • Advice on options for increasing your pension • The 50/50 option • Freedom and Choice • Restriction of Pensions Tax Relief • Information about our Pensions Clinics and the Annual General Meeting • Information about pre-retirement courses • Death Grant Nominations • Information about the Fund, including Pensions Committee and the new Pensions 5 85 Oversight Board, and an Accounts and Investments overview • Legislative changes over the past year • Signposts to our website and the pensions calculator • Changes to the State Pension
4.13 We are also sending each member a copy of the Pension Regulators (tPR) leaflet and advice about pension scams and fraud.
4.14 These statements are the first to include a combination of service under the old scheme and the new scheme. As members benefit packages and options become more and more complex, we continue to focus on trying to present the information in as clear, engaging and helpful way as possible, in line with the tPR’s new Code of Practice for public sector schemes.
4.15 This year’s Annual Benefit Statement details will be loaded to the online facility so that registered members can view their statement online if they wish to.
4.16 Examples of this year’s mailing can be seen at the following appendices:
• Appendix B – Active Member Sample Annual Benefit Statement 2015 • Appendix C – Deferred Member Sample Annual Benefit Statement 2015
4.17 Pension Clinics and Annual Meeting
4.18 Pension Clinics (where members are invited for one-to-one meetings with our pension advisors following receipt of their annual benefit statements) are being held in Norwich on 13, 16, 18 and 19 November 2015. We are also holding Pension Clinics in King’s Lynn on 11 and 12 November 2015.
4.19 Although we offer this service all year, the annual statements act as a valuable prompt to members to follow up any questions or concerns they may have about their pensions.
4.20 Members have also been invited to attend the Fund’s Annual Meeting on Monday 16 November 2015 at 6pm at our offices in Norwich. Although we offer an annual meeting to Scheme Members every year as part of our commitment to accountability and transparency, interest has historically been very low.
4.21 Annual Allowance and Lifetime Allowance
4.22 Pension Savings Statements will be issued to all scheme members who exceeded the Annual Allowance in 2014/15 by the end of September 2015 to meet statutory obligation.
4.23 The Annual Allowance has been reduced in 2014/15 to £40,000 from £50,000. We therefore expect to issue more statements this year and that more of our members will incur a tax charge. From 2014/15 we are required to inform HMRC when we issue a Pension Savings Statement.
4.25 With retired members
4.26 Retired members forum
4.26 Invitations for the next Retired Members events (scheduled for end April 2016) will be sent to all pensioners with their November payslips.
6 86 4.27 As in previous years we will be seeking sponsorship from our Custodian, Investment Advisor and Fund Managers to fund this service.
4.28 With employers
4.29 Employer Newsletter – Autumn 2015
4.30 We are currently preparing our next employer newsletter which will be published in September.
4.31 In addition to the standing items, the newsletter will focus on:
• Annual Benefit Statements • Continuing reform of public and state pensions and implications for employers • Review of year end and preparation for the next triennial valuation • Changes to the Annual Allowance and the Lifetime Allowance • Update to strain cost factors • The end of Contracting Out
4.32 Employer Forum
4.33 Our next Employer Forum will be on 1 December 2015 and will also focus on the same areas as highlighted for the newsletter above.
4.34 HM treasury consultation on a Public Sector Exit Cap
4.35 Details of the HM treasury consultation on a Public Sector Exit Cap were shared with all employers (see Item 5.6 below)
5. Pensions Reform
5.1 LGPS pooled investments
5.2 In his summer budget the Chancellor announced that the LGPS would be invited to bring forward proposals to invest collectively and deliver savings.
5.3 The invitation will include the evaluation criteria that will be used to assess proposals, including the scale and size of pooled investments and the role of passive management in an investment strategy.
5.4 We understand that strategic asset allocation decisions will remain at the local fund level
5.5 The consultation will also detail ‘backstop legislation which will ensure that those administering authorities that do not come forward with sufficiently ambitious proposals are required to pool.’ [Red Book].
5.6 HM Treasury consultation on a Public Sector Exit Cap
5.7 On 31 July HM Treasury published a Consultation on a Public Sector Exit Payment Cap.
5.8 The proposal is for the introduction of a £95,000 limit on the total value of payments made in connection with the termination of a public sector worker’s employment.
7 87 5.9 It is proposed that this will include the early retirement strain cost arising in the LGPS if the member is taking early payment of benefits unreduced.
5.10 Compensation payments in respect of death or injury, serious ill health and ill health retirements would be excluded from any cap.
5.11 The full consultation document can be viewed here: https://www.gov.uk/government/consultations/consultation-on-a-public-sector-exit- payment-cap/consultation-on-a-public-sector-exit-payment-cap
5.12 The consultation closed on 27 August 2015.
5.13 The changes, if implemented as proposed, would have a significant impact on employees and employers, and also necessitate changes to the LGPS Regulations. .
5.14 For example, staff who would not normally be considered “high earners” could trigger the cap by being made redundant, and this may have knock-on effects on how a Council implements broader cost reduction strategies.
5.15 The costs of unreduced early retirement pensions alone could exceed £95,000 in some cases.
5.16 As an indication only, using the Norfolk Pension Fund’s early retirement factors it is roughly estimated that a male scheme member aged 55 with a critical retirement age of 65 (with no reduction to the £95K cap due to a redundancy payment and assuming no 3/80th lump sum) with an accrued pension of £12,000 would trigger the cap (30 years’ service at £24K or 20 years’ service at £36K would result in a pension of £12k, assuming 1/60th pension accrual).
5.17 Hymans Robertson have prepared a ‘Sixty second Summary’ briefing which analyses the proposals and implications in more detail and this is attached as Appendix D.
5.18 The Pension Fund response to the consultation has been issued to Committee.
5.19 Freedom and Choice
5.20 All our documentation has been updated to meet the new requirements. Anecdotally there was a peak of transfer enquiries, but no significant increase in the number of members transferring their pension rights to another pension scheme.
6. Collaborative Working / Value for Money
6.1 Procurement of Administration Software and Online Services
6.2 After completing our pre-procurement research, we are seeking clarification around the Terms and Conditions and pricing of services under alternative procurement options before finalising the best approach to the market.
6.3 We are working together with the Suffolk and Dorset Pension Funds, and are being supported by Norfolk procurement and NPLaw for this exercise.
8 88 6.4 National LGPS Procurement Frameworks
6.5 The National LGPS Procurement Frameworks are an initiative between a number of LGPS Funds, led by the Norfolk Pension Fund and supported by Norfolk Procurement Services and NPLaw, which are delivering significant value for money benefits nationally (as of March 2015 circa £16m). The frameworks generate an income to pay for their ongoing management.
6.6 The frameworks project is a significant contributor to the Governments efficiency and value for money reform agenda within the LGPS.
6.7 The closing date for applications for the new post of National LGPS Frameworks Development and Operations Manager, was the end of August. This new role is 100% funded from the income generated by the frameworks project, and will enable the project to deliver further benefits across the LGPS.
7. Awards and Achievements
7.1 The Norfolk Pension Fund has been shortlisted for the LGPS Fund of the Decade award at the LAPF Investment Awards.
7.2 The results will be announced on 3 September 2015.
8. Guaranteed Minimum Pension (GMP) Reconciliation
8.1 We are doing background work checking cases, but are waiting for national advice concerning the tolerances we can accept when comparing HMRC records to our own.
8.2 There is also the possibility that we will not be taking into account GMPs when indexing pensions in the future.
8.3 When these issues have been resolved we will tackle the reconciliation in earnest.
9. Changes to taxation of pensions savings and contracting out
9.1 The Lifetime Allowance (LTA) is the value of lifetime pension savings that can be paid before a further tax charge is levied. In his 2015 Budget, the Chancellor announced that from April 2016 the LTA will be reduced to £1 million from £1.25 million, with transitional protection available.
9.2 From April 2018 the LTA will be indexed annually in line with the Consumer Prices Index (CPI). The Chancellor’s speech also confirmed that no changes would be made to the Annual Allowance, although Pension Input Periods are being aligned with tax years from 8 July 2015.
9.3 Contracting out of the secondary state pension ceases in April 2016. This will impact both scheme employers and scheme members as both employers and employees National Insurance Contributions will be payable at the (higher) contracted in rates.
9 89 10. Extension of the ‘Tell us once’ service to the LGPS
10.1 ‘Tell Us Once’ is a service that lets people report a death to most government organisations in one go.
10.2 Until now the service has not extended to occupational pension schemes (including the LGPS).
10.3 On behalf of LGPS Funds, the LGA have sent the Department of Work and Pensions a letter of intent confirming that the LGPS in England, Wales and Scotland would like to be part of the service when this is extended to public service pension schemes in the coming months.
11. Year-end
11.1 Closure of Accounts
11.2 Ernst & Young have completed their final audit of the annual accounts. The Annual Report & Accounts are presented as a separate item to this Committee.
11.3 Employers
11.4 We are working through the final processing of the annual returns from employers.
11.5 We have received patches for our administration software and are testing annual benefit statement production with a view to producing these by end of September.
12. Banking Transition
12.1 The switch from the Co-operative Bank to Barclays went ahead at the start of August.
12.2 Following go-live with Barclays, there is a run-off period of up to 3 months before the old Co-op accounts are closed and the contract terminated. This will allow for un-presented transactions to clear to through Co-op bank accounts and for the manual redirection of any income received before final bank account reconciliations are completed.
12.3 Operational procedures have been updated to reflect the new banking arrangement.
13. Knowledge and Skills
13.1 We are finalising arrangements for the 2 day Trustee training event.
13.2 The proposed training dates are 12th and 13th November.
10 90 14. CIPFA Benchmarking
14.1 The Norfolk Pension Fund takes part in the annual Chartered Institute of Public Finance and Accountancy (CIPFA) Pensions Administration Benchmarking Club.
14.2 We use this data to compare our service provision with other authorities and target any areas of improvement. It helps us to understand the specific service pressures that the Fund faces and to operate as effectively and efficiently as we can.
14.3 Results are published each September, for the previous financial year (1 April to 31 March).
14.4 As September Committee date is slightly earlier than in previous years, the data had not been received in time for inclusion in this report. A summary of the data will be provided to Members as soon as received and validated.
15. Freedom of Information Act (FoIA)
15.1 Since the last Committee meeting, we have provided the following responses to Freedom of Information Act enquiries. All responses have been made via the Corporate Freedom of Information Act Officer within statutory deadlines.
15.2 Date Requestor Details Status Received
26 June Preqin Details of Private Equity Portfolios Responded 2015
17 August Pitchbook Details of Private Equity and Real Responded 2015 Data Estate Investments
16. ClubVita Update
16.1 The Fund uses bespoke longevity assumptions (baseline longevity assumptions matched individually to the characteristics of each member of the Fund) provided by ClubVita.
16.2 ClubVita have provided the latest curves. Compared with the assumptions used for the 2013 Valuation the latest curves (a measure of future life expectancy) reduce the Funds liabilities by 0.7%. The impact of the Fund’s actual mortality experience since the last valuation have increased total liabilities by around 0.1% (there have been fewer pensioner deaths than expected).
16.3 When actual experience is combined with the updated Vita curves, in aggregate liabilities are estimated to have reduced by 0.6%. Total liabilities at the last valuation were £3.2 billion.
11 91 17. Monitoring Employer Pay Increases (2013 Valuation assumptions)
17.1 As part of the 2013 Valuation the long term pay increase assumption was reduced to RPI only from the previous long term assumption of RPI +1.5%.
17.2 As part of this change it was agreed to introduce a recharge mechanism for funding strain when an employer exceeds the assumption in its actual pay increase experience across its full membership. Upon final sign-off of all employer year-end data, we will be providing data to the Fund Actuary to establish if any employers are liable to pay additional contributions as a result of awarding larger pay increases based on their 2014-15 membership data.
17.3 All employers signed up to this assumption and policy as part of the 2013 Valuation.
18. Admission Agreements – Edwards & Blake (Cherry Tree Academy & Wymondham High Academy)
18.1 The Fund received two urgent applications for Admission Agreements from Edwards & Blake for commencement at the start of September 2015.
18.2 The Committee has previously (June 2012) approved delegated authority to the Chairman to note an Admission Agreement on behalf of the Committee in circumstances such as this where the application falls outside of the statutory Committee cycle. Details of the agreement are then provided to the next meeting of the Committee.
18.3 Both the admissions are in respect of TUPE transfer of staff with LGPS rights in respect of school catering contracts at Wymondham High School Academy (Wymondham) and Cherry Tree Academy (Cherry Tree).
18.4 The Wymondham transfer involves five current LGPS members and the Cherry Tree transfer two current LGPS members.
18.5 The new agreements are closed to new members and cover only the transferring staff while they remain specifically employed on this contract.
18.6 It accordance with requirements from DCLG a separate Admission Agreement is required for each contractual arrangement.
18.7 Both contracts are being let on an initial three year term with a potential two year extension at Wymondham.
18.8 The new employer was fully funded at outset in respect of both admissions.
18.9 The relevant Academy is party to the Admission Agreement in each case and are the ultimate guarantor in the event that the contractor fails without honouring its financial obligations to the Fund.
18.10 Edwards & Blake have a number of existing admission agreements with the Fund in respect of various school catering contracts.
12 92 19. Update on Bulk Transfer Values in Progress
19.1 Please see Appendix E for Bulk Transfer Values in Progress.
20. Representation on behalf of the Pension Fund
20.1 Please see Appendix F for meetings and events which have taken place since the last Pension Committee and ones which may be of interest to trustees or officers of the Fund.
21. Norfolk Pension Fund – Pensions Committee Forward Plan
21.1 The rolling one-year Pensions Committee Forward Plan intended to compliment the Fund’s rolling three-year service plan is attached at Appendix G.
21.2 The service plan was approved by Committee in February 2015.
22. Other Implications
22.1 Equality Impact Assessment (EqIA) There are no issues relevant to equality in this report.
22.2 Any Other Implications Officers have considered all the implications which members should be aware of. Apart from those listed in the report (above), there are no other implications to take into account.
23. Section 17 – Crime and Disorder Act
23.1 There are no implications under the Crime and Disorder Act.
24. Recommendations
24.1 It is recommended the Committee approve the Pension Fund’s Governance Compliance Statement, as detailed in Item 3.3.
24.2 It is recommended the Committee note the contents of this report, in particular the Admission Agreements in respect of Edwards & Blake (Cherry Tree Academy & Wymondham High Academy) as detailed in Item 18.
13 93 Background Papers
Appendix A – Norfolk Pension Fund Governance Compliance Statement 2015 Appendix B – Active Member Sample Annual Benefit Statement 2015 Appendix C – Deferred Member Sample Annual Benefit Statement 2015 Appendix D – Hymans Robertson 60 Second Summary - Public Sector Exit Payment Cap Proposed Appendix E – Update on Bulk Transfer Values in Progress Appendix F – Representation on Behalf of the Fund Appendix G – Norfolk Pension Fund – Pensions Committee Forward Plan
Officer Contact
If you have any questions about matters contained in this paper please get in touch with:
Nicola Mark Tel no: 01603 222171 email address: [email protected]
If you need this Report in large print, audio, Braille, alternative format or in a different language please contact Doreen Metcalf on 0344 800 8020 or 0344 800 8011 (textphone) and we will do our best to help.
14 94 Appendix A The Norfolk Pension Fund Governance Compliance Statement as at August 2015 Local Government Pension Scheme Regulations 2013 (as amended) Regulation 55
Principle A – Structure
Not compliant* Fully compliant a √ b √ c √ d √
a. The management of the administration of benefits and strategic management of fund assets rests clearly with the main committee established by the appointing council. Full Council have delegated responsibility to Pensions Committee to administer all aspects of the Norfolk Pension Fund on behalf of Norfolk County Council as Administering Authority of the scheme, and on behalf of NCC as an employer within the scheme alongside all other contributing employers, and on behalf of all scheme beneficiaries (scheme members).
b. That representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner and deferred members) are members of either the main or secondary committee established to underpin the work of the main committee. In addition to the Norfolk County Council members, 2 district councillors elected by the Local Government Association represent the largest group of employers; an additional observer seat is available to all other employers. Scheme members (including active, deferred and retired) are represented at Committee by the Staff Representative.
c. That where a secondary committee or panel has been established, the structure ensures effective communication across both levels. There is no formal secondary committee or panel. Regular employers’ forums and other activities detailed within the communication strategy ensure effective communication.
d. That where a secondary committee or panel has been established, at least one seat on the main committee is allocated for a member from the secondary committee or panel. No formal secondary committee or panel has been established. However employers are regularly reminded via the Employers’ Forum and Employers newsletters of the observer seat at Committee. Scheme members are reminded that they can observe committee meetings via the annual “Your Pension” booklet and also at the Annual Meeting. Some Committee Members also attend Employer Forum meetings.
S:\Invest\PensionTeam\Pensions Committee\2015\2015-09-08\Admin Report\Item 13 - Appendix A - Norfolk Pension Fund Governance Compliance Statement 2015.doc Page 1 of 5 95 Appendix A The Norfolk Pension Fund Governance Compliance Statement as at August 2015 Local Government Pension Scheme Regulations 2013 (as amended) Regulation 55
Principle B – Representation
Not compliant* Fully compliant a.i √ .ii √ .iii √ .iiii √ a That all key stakeholders are afforded the opportunity to be represented within the main or secondary committee structure. These include:
i Employing authorities (including non scheme employers, e.g. admitted bodies) Two district councillors elected by the Local Government Association represent the largest group of employers. An additional observer is seat available to all other employers.
ii Scheme members (including deferred and pensioner scheme members) Scheme members (including active, deferred and retired) are represented at Committee by the Staff Representative. Scheme members are reminded that they can observe committee meetings via the annual “Your Pension” booklet and also at the Annual Meeting.
iii Independent professional observers Hymans Robertson, as Advisers to the Norfolk Pension Fund, attend Committee.
iv Expert advisors (on an ad-hoc basis) Expert advisors are invited to attend committee as and when necessary.
Principle C – Selection and role of lay members
Not compliant* Fully compliant a √ b √ a That committee or panel members are made fully aware of the status, role and function that they are required to perform on either a main or secondary committee. In addition to general Councillor Induction for newly elected members, Pensions Committee members are briefed on appointment to Pensions Committee by the Head of Pensions. Other elected members who do not sit on Pensions Committee are briefed as required / requested. b That at the start of any meeting, committee members are invited to declare any financial or pecuniary interest related to specific matters on the agenda. This is a standing agenda item for each committee meeting.
S:\Invest\PensionTeam\Pensions Committee\2015\2015-09-08\Admin Report\Item 13 - Appendix A - Norfolk Pension Fund Governance Compliance Statement 2015.doc Page 2 of 5 96 Appendix A The Norfolk Pension Fund Governance Compliance Statement as at August 2015 Local Government Pension Scheme Regulations 2013 (as amended) Regulation 55
Principle D – Voting
Not compliant* Fully compliant a √ a The policy of individual administering authorities on voting rights is clear and transparent, including the justification for not extending voting rights to each body or group represented on main LGPS committees. Voting rights are set out in the Norfolk Pension Funds Governance statement which is published on the Funds website, www.norfolkpensionfund.org . All members of Pensions Committee have voting rights, including the Staff Representative.
Principle E – Training / facility time / expenses
Not compliant* Fully compliant a √ b √ c √ a That in relation to the way in which statutory and related decisions are taken by the administering authority, there is a clear policy on training, facility time and reimbursement of expenses in respect of members involved in the decision making process. We use Norfolk County Councils’ generic elected member remuneration policy, which includes Travel and Subsistence allowances. In addition, the Fund maintains a training budget for elected members for the delivery of our on going members training programme, and related expenses. b That where such a policy exists it applies equally to all members of committees, sub- committees, advisory panels or any form of secondary forum. We give the same allowances to other individuals / bodies where necessary, for example the Staff Representative, members of the Pensions Oversight Board (Local Pension Board). c That the administering authority considers the adoption of annual training plans for committee members and maintains a log of all such training undertaken. Committee member training needs are considered alongside the 12 month committee agenda planning process. However training is business driven, and therefore the programme is flexible. This allows us to align training most effectively with operational need / current agenda items, and therefore support member decision making. Member training is supplemented by attending LGE and other associated events, as well as an annual comprehensive 2 day bespoke Knowledge and Understanding event, talking to leading experts about all aspects of LGPS Investment and Governance and current issues, e.g. in 2013 and 2014 this included meeting the Funds Actuary, Hymans S:\Invest\PensionTeam\Pensions Committee\2015\2015-09-08\Admin Report\Item 13 - Appendix A - Norfolk Pension Fund Governance Compliance Statement 2015.doc Page 3 of 5 97 Appendix A The Norfolk Pension Fund Governance Compliance Statement as at August 2015 Local Government Pension Scheme Regulations 2013 (as amended) Regulation 55
Robertson, to discuss the outlook for the 2013 valuation; Nomura to discuss transition management; Fidelity regarding corporate governance and stakeholder responsibilities; Goldman Sachs to discuss ‘excellence in pensions’; Hendersons for an overview of fixed interest investing; and DCLG to discuss LGPS 2014 and other issues. A Training Log is maintained.
Principle F – Meetings (frequency / quorum)
Not compliant* Fully compliant a √ b √ c √ a That an administering authority’s main committee or committees meet at least quarterly. The Pensions Committee meets quarterly. b That an administering authority’s secondary committee or panel meet at least twice a year and is synchronised with the dates when the main committee sits. There is no formal secondary committee or panel. The Employers’ Forum meets regularly, planned around operational requirements. c That administering authorities who do not include lay members in their formal governance arrangements, provide a forum outside of those arrangements by which the interests of key stakeholders can be represented. A Staff Representative (who represents all current, deferred and retired scheme members) sits on Pensions Committee. Also an Observer Seat at Committee is available to Employers not directly represented, and Employers are reminded of this at Forums and via other publications. In addition, regular Employers’ Forums, an Annual Meeting for all scheme members (including Deferreds) and Retired Members annual events are held.
Principle G – Access
Not compliant* Fully compliant a √ a That subject to any rules in the council’s constitution, all members of main and secondary committees or panels have equal access to committee papers, documents and advice that falls to be considered at meetings of the main committee. All committee members have equal access to committee papers, documents and advice. Minutes of Committee Meetings are published on Norfolk County Councils website www.norfolk.gov.uk .
S:\Invest\PensionTeam\Pensions Committee\2015\2015-09-08\Admin Report\Item 13 - Appendix A - Norfolk Pension Fund Governance Compliance Statement 2015.doc Page 4 of 5 98 Appendix A The Norfolk Pension Fund Governance Compliance Statement as at August 2015 Local Government Pension Scheme Regulations 2013 (as amended) Regulation 55
Principle H – Scope
Not compliant* Fully compliant a √ a That administering authorities have taken steps to bring wider scheme issues within the scope of their governance arrangements. The Norfolk Pension Fund adopts a holistic approach to pension fund management. Pensions Committee is responsible for all aspects of the management of the pension fund (investment and administration) and delivery of its services, including all relevant budgets, strategies and service planning.
Principle I – Publicity
Not compliant* Fully compliant a √ a That administering authorities have published details of their governance arrangements in such a way that stakeholders with an interest in the way in which the scheme is governed can express an interest in wanting to be part of those arrangements. The Norfolk Pension Funds Governance Statement and Communication and Customer Care Strategy are published on the Funds’ website www.norfolkpensionfund.org, and included within the Pension Fund Annual Report (which is also published on our website), with hard copies of each available on request. Employers are reminded via the Employers Forum and Employers Newsletters that there is an observer seat at Committee for Employers not directly represented. Scheme Members receive an annual booklet with news of the Funds performance, legislative changes and other relevant pension’s news, and are invited to a formal annual meeting. Retired members are invited to the annual retired members’ events, and also receive an annual newsletter.
S:\Invest\PensionTeam\Pensions Committee\2015\2015-09-08\Admin Report\Item 13 - Appendix A - Norfolk Pension Fund Governance Compliance Statement 2015.doc Page 5 of 5 99 Appendix B
This booklet contains important information about Delivering the Local Government your pension Pension Scheme Please read it carefully and keep it Your Personal in a safe place Benefit Statement
FINALIST www.norfolkpensionfund.org100 Welcome to your personal benefit statement for 2015
Contents Your name
4 Your LGPS provides more than you might think… Date of birth <1st January 1961>
5 …but we appreciate money might be tight at the moment National Insurance number
2 101 3 The Local Government Pension Scheme (LGPS)
Your LGPS provides more than you might think… …but we appreciate money might be tight The LGPS is one of the main public sector pension schemes and is at the moment considered to be one of the best in the country. Membership provides We know finances are currently stretched for many scheme members, you with a secure, regular income in retirement which goes up in with pension contributions increasingly competing against other line with inflation, along with other valuable benefits: monthly bills and outgoings for a slice of pay packets. ● A pension for life when you retire, based on your membership Understandably this may make you think about opting out of the and pay – no need to worry about what happens in the ‘financial scheme; however things aren’t always as straightforward as they markets’ seem… ● The option to take a lump sum when you retire ● A pension for your dependants if you die Did you know, as a member of the LGPS: ● Valuable ‘peace of mind’ life cover at no extra charge – if you die ● Your employer pays in to your pension too – while paying into the scheme a lump sum death grant of 3 x your typically twice as much as you contribute! salary is payable. So, if you earn £20,000 a year we would pay out £60,000 if you died ● You currently pay less tax and national insurance ● You may qualify for an early pension if you have to retire through For example ill health at any age or are made redundant after age 55 If you pay £100 a month to your pension this reduces your tax The above is just a summary of the main scheme benefits. You can find bill by £20 a month (if you are paying tax at the basic rate). Your out more in our Brief Guide to the LGPS, available on our website at National Insurance contributions go down too www.norfolkpensionfund.org or by contacting us using the details on the back of this booklet. So opting out may not save you as much as you think You have the option to join the 50/50 section of the scheme, where you pay half of your normal Guaranteed income contributions to build up half of your normal in retirement – There is pension. See page 19 for more information. unaffected by the another ups and downs of the Your pension way… financial markets goes up in line with the cost of living
4 102 5 LGPS 2014…
...a reminder of your new scheme Your Normal Pension Date – where you can retire and take your benefits in full – is linked to your State This is the first statement of benefits we are sending you since the Pension Age. As a result it may change in line with any future new Local Government Pension Scheme launched in April 2014, so we increases to the State Pension Age. thought we would remind you of some of the changes. You can now choose to retire and draw your pension any time from The scheme moved from a Final Salary scheme to a Career Average age 55; however your benefits will be reduced if you choose to retire one. This means the pension you build up from 1 April 2014 is based before your Normal Pension Date and increased if you retire later. on the pay you earn each year, rather than your final salary when you leave: The cost to you is based on a series of contribution bands. ● We will add pension equal to 1/49th of your pay into your pension account for each year you are in the new LGPS 2014 scheme (or These bands are reviewed each year in line with inflation. 1/98th of your pay for any period spent in the 50/50 section) The employee contribution bands from 1 April 2015 are: ● This is then re-valued each year in line with inflation to make sure Band Your Yearly Pay Your Contribution Rate your pension keeps up with the cost of living 1 Up to £13,600 5.5% 2 £13,601 - £21,200 5.8% 3 £21,201 - £34,400 6.5% All benefits 4 £34,401 - £43,500 6.8% earned up to April 2014 remain 5 £43,501 - £60,700 8.5% protected as 6 £60,701 - £86,000 9.9% Final Salary 7 £86,001 - £101,200 10.5% 8 £101,201 - £151,800 11.4% 9 £151,801 or more 12.5% Your contribution is based on your actual pay All your earnings, including pay for non-contractual overtime or additional hours worked, count towards your pension from April 2014. There is more information on your new scheme on our website at www.norfolkpensionfund.org or on the national www.lgps2014.org site. 6 103 7 If you think any of Your pension these details are wrong, please Your personal benefit statement from let us know… Over the next few pages we will show you the benefits the Norfolk Pension Fund you have built up so far and an indication of what you Date you joined the scheme <5 June 2010> might get when you retire.
Section of the scheme at 31 March 2015
8 104 9 Current value of How your benefits your benefits are calculated
Total benefits built up to 31 March 2015 Here’s how we have worked out your total benefits… Automatic tax-free Total annual pension Value of Final Salary benefits at 31 March 2015 lump sum Final Salary pay <£18,100.92> Annual Final Salary pension <£1,950.50> Including pension at 80ths <£1,250.00> <£2,425.00> and pension at 60ths <£700.50> + Automatic lump sum <£4,010.00> <£4,506.00> Any extra membership and/or pension you have bought to date is included in the Final Salary benefits above. We have shown your retirement benefits assuming you retire at your Normal Pension Date (see page 14). You can choose to Value of Career Average benefits at 31 March 2015 + retire earlier and take your benefits from age 55 but they may be reduced for early payment. Pensionable pay in main section <£1,448.00> Your options Pensionable pay in 50/50 section <£4,400.92> The automatic tax free lump sum only applies to pre-2008 Amount of pension built up in 2014-15: benefits. However, when you retire you could choose to give up part of your pension for extra tax-free retirement grant – a smaller Main section (Pensionable pay / 49) <£474.50> annual pension and a bigger lump sum. 50/50 section (Pensionable pay / 98) <£0.00> You get £12 extra lump sum for every £1 of pension you give up; Additional pension bought <£0.00> although there are limits on the size of the tax-free lump sum you Transfers in <£0.00> can take. Annual Career Average pension <£474.50>
Register at www.norfolkpensionfund.org The Career Average part of your pension is re-valued on to use your own personal pension calculator 1 April each year, in line with the cost of living. The first and see the different options you might have re-valuation was at 1 April 2015, in respect of the 2014-15 scheme year. We will show this re-valuation in next year’s statement, as this statement shows the value of your 10 benefits up to 31 March 2015. 105 11 The value of your death benefits
If you die ‘in service’ the value of your death benefits at 31 March 2015 is: One-off lump sum life cover <£55,359.00> Expression of wish details for payment of lump sum life cover Name Percentage + Jane Sample 50% Annual partner’s pension <£2,090.00> Peter Sample 50% The figure shown above is an indication of the amount of pension we would pay to one of the following:
Your or or Your husband Your civil cohabiting or wife partner partner
Need an Expression of Wish form? You can download one Cohabiting partner from our website at www.norfolkpensionfund.org or A ‘cohabiting partner’ is someone you are living with but are not contact us using the details on the back of this booklet. married to or in a civil partnership with – some people call this a ‘common law’ marriage or partnership. If you and your partner have been living together for at least 2 years, are free to marry or enter into a civil partnership and are financially interdependent, Any eligible children under the age of 18, or then your partner may be eligible to receive a pension in the in full-time education and under the age of event of your death. 23, would be entitled to a child’s pension in addition to the amounts shown on page 12 Since 1 April 2014 you no longer have to nominate a cohabiting partner to be eligible for a cohabiting partner’s pension. We would require your partner to provide proof of eligibility before any cohabiting partner’s pension would be paid. However if you have nominated a cohabiting partner in the past, their details are shown here: Miss Sara Bloggs
12 106 13 Register at www.norfolkpensionfund.org to What might you get use your own personal pension calculator and when you retire? see the different options you might have
Here’s how we have worked out your total Normal projected benefits… Pension <1 January 2023> Date Projected Final Salary benefits Automatic tax-free Annual Final Salary pension <£2,000.00> Total annual pension lump sum (Including Actuarial Increase of < £2,00.00 > ) Automatic lump sum <£4,506.00> (Including Actuarial Increase of < £706.00 > ) <£2,425.00> + <£4,506.00> Projected Career Average benefits + Annual Career Average pension <£425.00> The above is an indication of the value of your benefits should you If your Normal Pension Date in the new scheme is later than it was in continue paying into the scheme as now and retire at your Normal the old scheme, we have added projected Actuarial Increases to your Pension Date. It is based on the section of the scheme you were in at Final Salary benefits to cover the period between the twoNormal 31 March 2015. Pension Dates. Your Normal Pension Date is the date you can retire and take your Retirement options benefits in full. It is linked to your State Pension Age for the pension you build up from 1 April 2014. As a result it may change in line with You can choose to retire at any time between age 55-75; however if any future increases to the State Pension Age. You can find out your you take your benefits before your Normal Pension Date they may State Pension Age at www.gov.uk/calculate-state-pension. be reduced for early payment. On the flip side, your benefits will be increased should you retire after your Normal Pension Date. Projected partner’s pension £1,028.00 These projections are based on your current Pensionable pay and/ This is an indication of the annual pension payable to your partner or your Final Salary pay (see page 8). We have assumed these pay should you die after retirement. For the purpose of this statement we figures will remain the same until your Normal Pension Date and have assumed you are married or in a civil partnership. If you would haven’t allowed for any future inflation. This means the figures shown like to know the benefits payable to a cohabiting partner in the event are in ‘today’s money’ terms which should make it easier to see if you of your death, please contact us. are saving enough. 14 107 15 Details of your membership If you have transferred membership into the LGPS from for Final Salary benefits another public sector scheme, this is shown below (up to 31 March 2015). Other transfers received that have been Below is the record we have of your LGPS membership up to used to buy Career Average benefits during the year are 31 March 2014. This relates to your Final Salary benefits only. shown on page 11, under Transfers in. If you think that any of these details are wrong, please let us know.
Employer or scheme Membership Membership Calendar Percentage Period of from to length of whole time membership
We can only show up to 16 lines of your membership above; however we use all relevant periods to work out your Final Salary benefits.
If you had a break in membership for any reason your period of Additional membership / pension purchased membership has been reduced accordingly. If you have paid or are paying additional contributions to buy extra If you work in a school the Percentage of whole time is averaged membership and / or extra pension then the extra membership out over the year. and / or pension you have bought to date has been included in the figures shown in your statement.
16 108 17 Your choices
Want to save more? Need to pay less for a while? There may be times when you consider adding to your pension, If money is a bit tight, you may think about perhaps if you joined later in your career or have had a career break. joining the 50/50 section. There are a couple of ways to do this in the LGPS. For any period you spend in the 50/50 Additional Pension Contributions (APCs) section you will pay half of your normal monthly contributions You can buy extra LGPS pension for your retirement by paying APCs, and build up half of your normal either as a regular monthly amount or a one- pension in return. You will still get off lump sum. This buys you a set amount of the same level of life and ill- extra annual LGPS pension, up to a current Remember! health cover as you do in the maximum of £6,675. You get tax relief on all your pension main section of the scheme. You can find out more about APCs and get a contributions, which You can choose to move quote by either using the online calculator at can make it a very to the 50/50 section at www.lgps2014.org or contacting us using tax-efficient way the details on the back of this booklet. to save any time and can switch between the main and 50/50 Additional Voluntary Contributions sections as many times as you (AVCs) like – you just need to send an Option to move between sections of the scheme You can build up extra savings for retirement by paying separate form to your employer contributions into our ‘in-house’ AVC schemes (available on our website with Clerical Medical or Prudential. at www.norfolkpensionfund.org or by You can choose how much to pay in and how contacting us using the details on the your contributions are invested. The money back of this booklet). comes straight out of your pay and goes to Clerical Medical or Prudential who invest it for you. The 50/50 section is designed to be a short-term solution, so your employer Your AVC fund is designed to grow as it is invested. You can use it to will always bring you back into the either take a cash lump sum and / or additional pension from the main section of the scheme at least Norfolk Pension Fund when you retire, or you can buy an annuity. once every three years. If you are interested in paying APCs or AVCs, please contact us using the details on the back of this booklet. 18 109 19 Freedom and Choice
You may have seen recent press coverage about the Government’s That sounds great but only the first 25% will be tax-free, with the rest shake up of the pensions industry, referred to as Freedom and Choice. being taxed. There is also the risk that some people may take all their From 6 April 2015, people in defined contribution pension schemes pension savings in one go and spend them all, leaving themselves have far more choice about how they access their pension pots. with no money to live on in retirement. How does this affect my Local Government Pension? Could I join a defined contribution scheme instead? The Freedom and Choice changes affect people in defined Yes, it’s not compulsory to be in the LGPS. There is nothing to stop contribution schemes. The LGPS is a different type of scheme, known you opting out of the scheme and joining a defined contribution as a defined benefit scheme. scheme, then using the Freedom and Choice rules to access the new pot with more freedom. However: As a member of a defined benefit scheme you pay in a set amount to ● build up a defined range of benefits, based on your pay and length of Most of our employers will only contribute to the LGPS, so you service. This provides you with a guaranteed income in retirement – would miss out on what they currently pay in (typically twice as unaffected by the ups and downs of the financial markets – so there is much as you do). ● no need to buy an annuity. You would be swapping your secure, guaranteed defined benefits for a pension pot that relies on the ups and downs of the Also, there is already a feature built into your benefits package investment markets. allowing you to give up some of your pension in exchange for tax-free cash. Given that people opting out of the LGPS could also transfer the value of their current benefits into the new defined contribution scheme, So what is a defined contribution scheme? there is the risk that all the benefits they have ever built up could be adversely affected by a fall in the stock market. In a defined contribution scheme members pay in a set amount – a defined contribution – which is invested in the financial markets Getting the right advice to provide a pension pot. Until now members have had to use this pension pot to buy an annuity – an annual income that is paid to Where people are considering transferring benefits from a defined them for the rest of their life. benefit scheme like the LGPS to a defined contribution scheme, they will have to take independent financial advice if the transfer value In recent times particularly, annuity rates haven’t been very good, so is £30,000 or more. members of defined contribution schemes have had a raw deal. The new Freedom and Choice changes are largely aimed at addressing The Government has set up a service called Pension Wise, which this issue by removing the requirement to buy an annuity. offers online help at www.pensionwise.gov.uk. There is also one to one information available from bodies like Citizens Advice. They People in these types of scheme will still be able to buy an annuity if won’t advise people what to do but they will offer guidance by they wish, but if they prefer they will be able to draw all their pension helping them weigh up their options. savings as one ‘cash’ amount. 20 110 21 Tax limits and your pension
When it comes to pensions, many members can pay into the scheme without ever having to worry about the size of their total pension pot, or how much their pension is growing year on year. Keep in touch with However, there are two key limits which affect some scheme members called the Lifetime This your pension online… Allowance and the Annual Allowance. doesn’t affect www.norfolkpensionfund.org Tip many scheme Have your Annual Allowance members Visit the Norfolk Pension Fund website for all National Insurance The Annual Allowance covers the amount you the latest news and information about the number handy can pay into your pension each year without having Local Government Pension Scheme. when you to pay tax. The limit is currently £40,000 a year. Register online with us to: register for the first time The Chancellor announced plans in his summer budget to reduce the ● Use your own pension calculator £40,000 Annual allowance from 2016-17, for those earning more than ● See your personal pension details £150,000 a year. ● Update your personal details You can top up your allowance for the current tax year (6 April to 5 If you would like some help to register April) with any allowance you didn’t use from the previous tax years. please call us on 01603 222132 or email [email protected] Lifetime Allowance The Lifetime Allowance applies to the total value of pension savings Over when they come into payment. The current limit is £1.25 million, reducing to £1 million from 6 April 2016, after which it will increase 8,000 annually in line with inflation so it maintains its value in real terms. scheme members have signed up Most scheme members won’t be affected by these so far! allowances; however if you do exceed either or both of these allowances then you may have to pay a tax charge. For those members it does affect, we will send you a Pensions Savings Statement with more details later in the year. Alternatively you can see the latest guidance on HMRC’s website at www.gov.uk/tax-on-your-private-pension.
22 111 23 Want to know more Are you preparing about your pension? for retirement?
Please come and talk to us… We run regular pre-retirement courses to help our scheme We are holding our very popular annual Pension Clinics in members prepare for retirement. The course is aimed November 2015. at people who will be, or are considering, retiring in the next 18 months to two years. Courses You can book an appointment to speak are open to The course covers: with one of our LGPS experts about your Early all scheme pension, either at our offices in the centre morning / ● Creating a new future and managing change members of Norwich or the offices of the Borough early evening ● Making the most of your retirement, leisure Council of King’s Lynn & West Norfolk. appointments and learning opportunities available in ● Maintaining health and fitness – turning good Norwich intentions into reality King’s Lynn ● Information about the Local Government Pension Scheme 11 & 12 November ● Investment options and where to get financial advice 2015 ● Estate planning and wills The Fund’s Norwich ● Opportunities in the voluntary sector Annual Meeting 13, 16, 18 & 19 To find out more, including course dates and how to book a place, is at 6pm on November 2015 please contact HR Direct at Norfolk County Council on Monday 16 01603 222212 or [email protected]. November 2015. To book a place at any of our Clinics or to Who do you want to benefit when you die? attend our Annual Meeting please call us on A lump sum death grant of three times your pay is payable if you 01603 495923. Don’t worry if you can’t make the dates above – die in service. Even if you die in retirement or as a deferred member, a let us know and we will arrange an appointment for a more death grant may still be payable. convenient time. You can nominate who you want this Looking Financial advice money paid to in the event of your death by after your completing an Expression of Wish form. If loved ones We are very happy to help you understand your pension and pension you have done this already the details are options; however we are not able to offer financial advice. If you need shown on page 13 of this booklet. ♥ financial advice you should contact an Independent Financial Advisor If you wish to complete or update your (IFA) who is regulated by the Financial Conduct Authority (FCA). You Expression of Wish you can download a form from our can find a list of regulated IFAs in your area at www.unbiased.co.uk. website at www.norfolkpensionfund.org or contact us. 24 112 25 The State Pension The Fund is changing
Pensions Committee A new State Pension Scheme is being introduced for people who reach State Pension Age on or after 6 April Pensions Committee are responsible for the Norfolk Pension Fund. 2016. You will be able to claim the new State Pension if you are: The Committee meets four times a year and meetings are open to the public. You can find Pensions Committee dates, agendas and reports ● a man born on or after 6 April 1951 on the Norfolk County Council website at www.norfolk.gov.uk under ● a woman born on or after 6 April 1953 Council and democracy. If you reach State Pension Age before 6 April 2016, you will get your Pensions Oversight Board State Pension under the current scheme instead. You can find out your State Pension Age at We wrote to you earlier in the year to tell you about our new Pensions www.gov.uk/calculate-state-pension. Oversight Board. As part of the reform of public sector pensions, all LGPS Funds are required to have a local pension board from April 2015. In Norfolk our local pension board is called the Norfolk Pension National Insurance contributions Fund Pensions Oversight Board. The LGPS is a contracted out scheme. This means that members who pay National Insurance contributions pay them at a lower rate, as they Its role is to assist Pensions Committee in complying with all are automatically contracted out of the Additional State Pension. legislative requirements, making sure the scheme is being effectively and efficiently governed and managed. Instead the LGPS guarantees to provide members with a certain amount of pension – in place of the Additional State Pension. The Board has an equal number of scheme member and employer representatives, along with an interim independent chairman to As part of the changes to the State Pension from 6 April 2016, the oversee its smooth running. Additional State Pension and contracting out will be abolished. As a result, if you pay National Insurance contributions, you are likely You can find out more about the Pensions to see these increase from 6 April 2016. Oversight Board on our website at www.norfolkpensionfund.org under You can find out more about contracting out, and both the old and About us then Local Pension Board. new State Pension Schemes at www.gov.uk/state-pension.
Your State Pension Forecast Because of the changes to the State Pension we are unable to include State Pension forecasts in your statement this year. However, you can get an estimate of your State Pension by contacting the Department of Work and Pensions on 0345 3000 168 or at www.gov.uk/state-pension-statement. 26 113 27 Changes to the LGPS Data protection since September 2014 information
The Local Government Pension Scheme (Amendment) Regulations Norfolk County Council is the administering authority were made on 17 March 2015 and came into force on 11 April 2015. of the Norfolk Pension Fund and is registered as Data These regulations made amendments to: Controller under the Data Protection Act 1998. The information ● The Local Government Pension Scheme Regulations 2013 you supply or supplied by your employer, administrators of any ● The Local Government Pension Scheme (Transitional Provisions, other pension arrangements you have, or HMRC may be kept on Savings and Amendment) Regulations 2014 computer and will be held no longer than necessary for the purpose The amendments include the following: of administering your pension rights under the Local Government Pension Scheme. Joining the scheme – there has been a slight change to the date you can elect to join the LGPS if you have an employment contract of less All information is kept secure, whether on than three months. paper or on a computer and you have the right to see the information the Council is 50/50 section – there is an additional circumstance added to the list holding about you – we will charge you a of scenarios where a member in the 50/50 section is automatically small fee for providing this. brought back into the main section of the scheme. The Council may share your information with Buying back lost pension – employers now have the discretion to third party organisations for the purpose extend the 30 day limit within which you can buy back lost pension of producing printed Benefit Statements, via a Shared Cost Additional Pension Contribution. mailing Newsletters or other communications; Opting out of the LGPS – members opting out of the scheme with an with the Pension Fund advisors for actuarial entitlement to a deferred benefit will no longer be able to join their purposes; or with your current or previous periods of membership together if they re-join the scheme. employers. Apart from this, we will not share your information with any other people or organisations for any other purpose unless you Reductions in hours due to ill health – if you have to reduce your consent or the law requires us to. However, the Council will always contractual hours of work due to ill health, there is now no impact share information for the prevention or detection of crime, or the on the pay used to work out the lump sum death grant and survivor apprehension or prosecution of offenders. benefits should you die in service. Payments of pension to a child – if you die leaving a young child, Disclaimer the scheme can now make payment to another person on their behalf This statement is based on the current provisions of the Local while they are too young to manage their affairs. Government Pension Scheme Regulations 2013 as amended and You can find more information about these amendments, other relevant legislation. This statement is provided for information and the scheme in general, in our Brief Guide to the LGPS at only and does not give you any legal rights. In the event of any www.norfolkpensionfund.org or by contacting us using the details dispute, nothing in it can override the scheme legislation. on the back of this booklet. 28 114 29 Accounts and investments M&G, Government Standard Life, Goldman Sachs and company Private Equity Asset Management, bonds 7% 3% Here is a summary of our latest Norfolk Pension Fund Active currency, HarbourVest Partners, accounts and investments… Government and Private Equity 4% company bonds 6% Accounts HSBC (Custodian) Global Funds, Our full accounts for 2014-15 are published on our website at Wellington, cash 1% Shares in global www.norfolkpensionfund.org following full external audit. You can companies 6% Fidelity Pensions also find there a copy of our Statement of Investment Principles, Management, which includes details of our Socially Responsible Investment and Sarasin, Shares in Shares in Corporate Governance activities. If you would like a paper copy of global companies overseas either document, please call us on 01603 222824. 6% companies 19%
2013/14 2014/15 Baillie Gifford & £000s £000s Co, Shares in UK Aviva Investors, companies 8% Property 12% Opening net assets of the scheme 2,483,215 2,670,147 Employees’ contribution to the Fund 26,721 27,253 L&G, shares in UK Henderson Global Investors, Employers’ contribution to the Fund 87,449 97,801 companies 8% Capital International Government and Limited, Shares in Transfer values received 5,695 5,255 company bonds 10% global companies Payments to pensioners and dependants -118,397 -121,841 10% Transfers out and other payments to leavers* -5,397 -87,683 Investments Advisor fees and general administration costs** -16,110 -15,484 We always have a mix of investment approaches and asset types as we Net investment return – including income aim to get the best return on investment we can, while at the same and the change in value of investments** 192,867 373, 422 time managing risk. Closing net assets of the scheme 2,670,147 2,948,870 As at 31 March 2015 our assets were managed by 12 Investment Managers and our Custodian. In addition, Berenberg Bank and Insight * 2014-15 figure includes one-off transfer of Probation Service Investment manage the Fund’s currency hedging contracts in respect members to Greater Manchester Pension Fund. of overseas equity holdings. The market value of these contracts is ** The way we are required to show Fund management costs included within the Custodian balance in the above chart. changed in 2014-15. The comparable 2013-14 figure has been Our investments returned 13% overall during 2014-15, through a re-presented to reflect this. period of uncertainty in financial markets. 30 115 31 Contact us… The Norfolk Pension Fund 4/5th Floor, Lawrence House 5 St Andrews Hill, Norwich NR2 1AD Telephone 01603 495 923 Fax 01603 495 795 Email [email protected] www.norfolkpensionfund.org
If you need this booklet in large print,
® audio, Braille, alternative format or in a different language, please contact 01603
495923 or 0344 800 8011 (textphone) 1252 CB 7/15 and we will do our best to help.
Printed on paper sourced from sustainable forests using vegetable based inks 116 Appendix C This booklet contains important information about Delivering the Local Government your pension Pension Scheme Please read it carefully and keep it Your Personal in a safe place Benefit Statement FINALIST www.norfolkpensionfund.org117 Welcome to your personal benefit statement for 2015 Contents Your name 4 Your Local Government Pension Scheme Date of birth <1st January 1961> 5 Keep in touch with your pension online National Insurance number 2 118 3 The Local Government Pension Scheme (LGPS) Your LGPS provides more than you might think… The LGPS is one of the main public sector pension schemes and is Keep in touch with considered to be one of the best in the country. Membership provides you with a secure, regular income in retirement which goes up in your pension online… line with inflation, along with other valuable benefits: ● A pension for life when you retire, based on your membership www.norfolkpensionfund.org Tip Have your and pay – no need to worry about what happens in the ‘financial Visit the Norfolk Pension Fund website for all National Insurance markets’ the latest news and information about the number handy ● The option to take a lump sum when you retire Local Government Pension Scheme. when you ● A pension for your dependants if you die Register online with us to: register for the first time ● Valuable ‘peace of mind’ life cover if you die before retirement, ● See your personal pension details at no extra charge (and if you die in retirement we will still pay ● View your annual benefit statement out a small lump sum if you haven’t drawn a minimum amount of ● Update your personal details pension) If you would like some help to register ● You may qualify for an early pension if you have to retire through please call us on 01603 222132 or email ill health [email protected] The above is just a summary of the main scheme benefits. You can find out more in our Brief Guide to the LGPS, available on our website at Over www.norfolkpensionfund.org or by contacting us using the details on the back of this booklet. 8,000 scheme members have signed up Guaranteed income so far! in retirement – unaffected by the ups and downs of the Your pension financial markets goes up in line with the cost of living 4 119 5 Details of your Your pension membership Over the next few pages we will show you the benefits This is the record of your membership we hold. We you have built up so far and an indication of what you received the information from your employer. If you might get when you retire. have transferred membership into the LGPS from another scheme this is also shown. Details of your membership page 7 Current value of your benefits page 8 If you think that any of these details are wrong, please let us know. The value of your death benefits page 10 Employer or scheme From To If you have an Additional Voluntary Contributions (AVC) plan with Clerical Medical, Equitable Life or Prudential, details are not included Financial advice We are very happy to help you understand your pension and pension options; however we are not able to offer financial advice. If you need financial advice you should contact an Independent Financial Advisor Only the most recent details of your membership are shown, although (IFA) who is regulated by the Financial Conduct Authority (FCA). You all periods are used when we work out your benefits. can find a list of regulated IFAs in your area at www.unbiased.co.uk. 6 120 7 Current value of your benefits Normal Pension <1 January 2023> Date Inflation-proofing Automatic tax-free Pensions increase applied <242.0400%> Annual pension lump sum Date of latest increase <7 April 2015> Your benefits are reviewed each year from the date you left the scheme so they keep pace with inflation. This is called <£1,490.31> Pensions increase and applies to your annual pension and + any automatic tax-free lump sum. <£4,507.95> Your options The above is an indication of the current value of your benefits, The automatic tax-free lump sum shown on page 8 only applies to assuming you retire at your Normal Pension Date. This is the date you pre-2008 benefits. However, when you retire you could choose to give can retire and take your benefits in full. up part of your pension for extra tax-free retirement grant – a smaller annual pension and a bigger lump sum. If you left the scheme prior to 1 April 2014 your Normal Pension Date is fixed at the date shown above. However, you may be able to You get £12 extra lump sum for every £1 of pension you give up; voluntarily retire and take your benefits from age 60, subject to an although there are limits on the size of the tax-free lump sum you can early payment reduction. take. If you left after 31 March 2014 your Normal Pension Date is linked to the State Pension Age, for any pension you built up from 1 April Register at www.norfolkpensionfund.org to 2014. As a result it may change in line with any future increases to the use your own personal pension calculator and State Pension Age. You may be able to voluntarily retire and take your see the different options you might have benefits from age 55, subject to an early payment reduction. You can find out your State Pension Age at www.gov.uk/calculate-state-pension. 8 121 9 The value of your Need an Expression of Wish form? You can download one from our website at www.norfolkpensionfund.org or death benefits contact us using the details on the back of this booklet. If you die before you retire, the current value of your death benefits is: One-off lump sum life cover <£55,359.00> Expression of wish details for payment of lump sum life cover Name Percentage + Jane Sample 50% Annual partner’s pension <£2,090.00> Peter Sample 50% The figure shown above is an indication of the amount of pension we would pay to one of the following: Your or or Your husband Your civil cohabiting or wife partner partner If you have re-joined the LGPS in England and Wales, or do so in the future, the one-off lump sum life cover payable would be Cohabiting partner the greater of 5 x your deferred pension or 3 x your pay in your A ‘cohabiting partner’ is someone you are living with but are not new job. married to or in a civil partnership with – some people call this a ‘common law’ marriage or partnership. The LGPS does not provide The partner’s pension shown is an indication of the a cohabiting partner benefit if you left before April 2008. amount payable to the person you were married to, in If you were contributing to the LGPS from April 2008 to March 2014, a civil partnership with at the date you left the scheme, you were allowed to nominate your cohabiting partner providing or have nominated to receive a survivors pension in you had lived with them for at least 2 years, were free to marry or the event of your death. If you have married or entered into a civil enter into a civil partnership and were financially interdependent. partnership since leaving then different amounts may be payable. Please contact us if you would like more details. If you have nominated a cohabiting partner their details are shown here: Miss Sara Bloggs Any eligible children under the age of 18, or in full-time education and under the age of 23, would be entitled to a child’s pension in addition From April 2014 you no longer need to make a nomination. We to the amounts shown on page 10. would require your partner to provide proof of eligibility before any cohabiting partner’s pension would be paid. 10 122 11 Freedom and Choice You may have seen recent press coverage about the Government’s That sounds great but only the first 25% will be tax-free, shake up of the pensions industry, referred to as Freedom and Choice. with the rest being taxed. There is also the risk that some people may From 6 April 2015, people in defined contribution pension schemes take all their pension savings in one go and spend them all, leaving have far more choice about how they access their pension pots. themselves with no money to live on in retirement. How does this affect my Local Government Pension? Could I transfer to a defined contribution scheme The Freedom and Choice changes affect people in defined instead? contribution schemes. The LGPS is a different type of scheme, known There is nothing to stop you joining a defined contribution scheme, as a defined benefit scheme. then using the Freedom and Choice rules to access the new pot with more freedom. As a member of a defined benefit scheme you have paid in a set amount to build up a defined range of benefits, based on your pay However, you would be swapping your secure, guaranteed defined and length of service. This provides you with a guaranteed income benefits for a pension pot that relies on the ups and downs of the in retirement – unaffected by the ups and downs of the financial investment markets. markets – so there is no need to buy an annuity. Given that people could also transfer the value of their current Also, there is already a feature built into your benefits package benefits into the new defined contribution scheme, there is the allowing you to give up some of your pension in exchange for tax-free risk that all the benefits they have ever built up could be adversely cash. affected by a fall in the stock market. So what is a defined contribution scheme? Getting the right advice In a defined contribution scheme members pay in a set amount – Where people are considering transferring benefits from a defined a defined contribution – which is invested in the financial markets benefit scheme like the LGPS to a defined contribution scheme, to provide a pension pot. Until now members have had to use this they will have to take independent financial advice if the transfer value pension pot to buy an annuity – an annual income that is paid to is £30,000 or more. them for the rest of their life. The Government has set up a service called Pension Wise, which In recent times particularly, annuity rates haven’t been very good, so offers online help at www.pensionwise.gov.uk. There is also one members of defined contribution schemes have had a raw deal. The to one information available from bodies like Citizens Advice. They new Freedom and Choice changes are largely aimed at addressing won’t advise people what to do but they will offer guidance by this issue by removing the requirement to buy an annuity. helping them weigh up their options. People in these types of scheme will still be able to buy an annuity if they wish, but if they prefer they will be able to draw all their pension savings as one ‘cash’ amount. 12 123 13 Want to know more Are you preparing about your pension? for retirement? Please come and talk to us… We run regular pre-retirement courses to help our scheme We are holding our very popular annual Pension Clinics in members prepare for retirement. The course is aimed November 2015. at people who will be, or are considering, retiring in the next 18 months to two years. Courses You can book an appointment to speak are open to The course covers: with one of our LGPS experts about your Early all scheme pension, either at our offices in the centre morning / ● Creating a new future and managing change members of Norwich or the offices of the Borough early evening ● Making the most of your retirement, leisure Council of King’s Lynn & West Norfolk. appointments and learning opportunities available in ● Maintaining health and fitness – turning good Norwich intentions into reality King’s Lynn ● Information about the Local Government Pension Scheme 11 & 12 November ● Investment options and where to get financial advice 2015 ● Estate planning and wills The Fund’s Norwich ● Opportunities in the voluntary sector Annual Meeting 13, 16, 18 & 19 To find out more, including course dates and how to book a place, is at 6pm on November 2015 please contact HR Direct at Norfolk County Council on Monday 16 01603 222212 or [email protected]. November 2015. To book a place at any of our Clinics or to Who do you want to benefit when you die? attend our Annual Meeting please call us on Even if you die in retirement or as a deferred member, a death grant 01603 495923. Don’t worry if you can’t make the dates above – may still be payable. let us know and we will arrange an appointment for a more You can nominate who you want this money convenient time. paid to in the event of your death by Looking Financial advice completing an Expression of Wish form. If after your you have done this already the details are loved ones We are very happy to help you understand your pension and pension shown on page 11 of this booklet. options; however we are not able to offer financial advice. If you need If you wish to complete or update ♥ financial advice you should contact an Independent Financial Advisor your Expression of Wish you can (IFA) who is regulated by the Financial Conduct Authority (FCA). You download a form from our website at can find a list of regulated IFAs in your area at www.unbiased.co.uk. www.norfolkpensionfund.org or contact us. 14 124 15 Changes to the LGPS The Fund since September 2014 Pensions Committee The Local Government Pension Scheme (Amendment) Regulations were made on 17 March 2015 and came into Pensions Committee are responsible for the Norfolk Pension Fund. force on 11 April 2015. These regulations made amendments to: The Committee meets four times a year and meetings are open to the ● The Local Government Pension Scheme Regulations 2013 public. You can find Pensions Committee dates, agendas and reports ● The Local Government Pension Scheme (Transitional Provisions, on the Norfolk County Council website at www.norfolk.gov.uk under Savings and Amendment) Regulations 2014 Council and democracy. The amendments include the following: Pensions Oversight Board Joining the scheme – there has been a slight change to the date you We wrote to you earlier in the year to tell you about our new Pensions can elect to join the LGPS if you have an employment contract of less Oversight Board. As part of the reform of public sector pensions, than three months. all LGPS Funds are required to have a local pension board from April 50/50 section – there is an additional circumstance added to the list 2015. In Norfolk our local pension board is called the Norfolk Pension of scenarios where a member in the 50/50 section is automatically Fund Pensions Oversight Board. brought back into the main section of the scheme. Its role is to assist Pensions Committee in complying with all Buying back lost pension – employers now have the discretion to legislative requirements, making sure the scheme is being effectively extend the 30 day limit within which you can buy back lost pension and efficiently governed and managed. via a Shared Cost Additional Pension Contribution. The Board has an equal number of scheme member and employer Opting out of the LGPS – members opting out of the scheme with an representatives, along with an interim independent chairman to entitlement to a deferred benefit will no longer be able to join their oversee its smooth running. periods of membership together if they re-join the scheme. Reductions in hours due to ill health – if you have to reduce your You can find out more about the Pensions contractual hours of work due to ill health, there is now no impact Oversight Board on our website at on the pay used to work out the lump sum death grant and survivor www.norfolkpensionfund.org under benefits should you die in service. About us then Local Pension Board. Payments of pension to a child – if you die leaving a young child, the scheme can now make payment to another person on their behalf while they are too young to manage their affairs. You can find more information about these amendments, and the scheme in general, in our Brief Guide to the LGPS at www.norfolkpensionfund.org or by contacting us using the details on the back of this booklet. 16 125 17 Have you re-joined the Local The State Pension Government Pension Scheme? is changing If you have re-joined the LGPS with another Fund in England and A new State Pension Scheme is being introduced for Wales, or if you do so in the future, there are a few things you need to people who reach State Pension Age on or after 6 April do: 2016. You will be able to claim the new State Pension if you are: ● Please let your new LGPS Fund know you have a deferred benefit in ● a man born on or after 6 April 1951 the Norfolk Pension Fund (and any other LGPS Funds you may have ● a woman born on or after 6 April 1953 deferred benefits with) ● You will also need to let them know of any intervening service you If you reach State Pension Age before 6 April 2016, you will get your may have had in any other public service pension scheme (even if State Pension under the current scheme instead. you received a refund of contributions for that service) You can find out your State Pension Age at ● Let us know you are an active member of another LGPS Fund in www.gov.uk/calculate-state-pension. England and Wales National Insurance contributions This will help make sure you are given the appropriate options regarding aggregation of your benefits and certain statutory rights are The LGPS is a contracted out scheme. This means that members who applied. pay National Insurance contributions pay them at a lower rate, as they are automatically contracted out of the Additional State Pension. Norfolk Pension Fund Dispute Procedure Instead the LGPS guarantees to provide members with a certain Please check the information in this statement carefully and let us amount of pension – in place of the Additional State Pension. know if you think any of the details are wrong. As part of the changes to the State Pension from 6 April 2016, the Most queries are easily sorted out this way; however if you still Additional State Pension and contracting out will be abolished. disagree with our decision you have the right to appeal via our official As a result, if you pay National Insurance contributions, you are likely dispute procedure. to see these increase from 6 April 2016. You can find a guide to the dispute procedure on our website at You can find out more about contracting out, and both the old and www.norfolkpensionfund.org. Alternatively, please contact us and new State Pension Schemes at www.gov.uk/state-pension. we will send you a copy. Your State Pension Forecast Because of the changes to the State Pension we are unable to include State Pension forecasts in your statement this year. However, you can get an estimate of your State Pension by contacting the Department of Work and Pensions on 0345 3000 168 or at www.gov.uk/state-pension-statement. 18 126 19 Accounts and investments M&G, Government Standard Life, Goldman Sachs and company Private Equity Asset Management, bonds 7% 3% Here is a summary of our latest Norfolk Pension Fund Active currency, HarbourVest Partners, accounts and investments… Government and Private Equity 4% company bonds 6% Accounts HSBC (Custodian) Global Funds, Our full accounts for 2014-15 are published on our website at Wellington, cash 1% Shares in global www.norfolkpensionfund.org following full external audit. You can companies 6% Fidelity Pensions also find there a copy of our Statement of Investment Principles, Management, which includes details of our Socially Responsible Investment and Sarasin, Shares in Shares in Corporate Governance activities. If you would like a paper copy of global companies overseas either document, please call us on 01603 222824. 6% companies 19% 2013/14 2014/15 Baillie Gifford & £000s £000s Co, Shares in UK Aviva Investors, companies 8% Property 12% Opening net assets of the scheme 2,483,215 2,670,147 Employees’ contribution to the Fund 26,721 27,253 L&G, shares in UK Henderson Global Investors, Employers’ contribution to the Fund 87,449 97,801 companies 8% Capital International Government and Limited, Shares in Transfer values received 5,695 5,255 company bonds 10% global companies Payments to pensioners and dependants -118,397 -121,841 10% Transfers out and other payments to leavers* -5,397 -87,683 Investments Advisor fees and general administration costs** -16,110 -15,484 We always have a mix of investment approaches and asset types as we Net investment return – including income aim to get the best return on investment we can, while at the same and the change in value of investments** 192,867 373, 422 time managing risk. Closing net assets of the scheme 2,670,147 2,948,870 As at 31 March 2015 our assets were managed by 12 Investment Managers and our Custodian. In addition, Berenberg Bank and Insight * 2014-15 figure includes one-off transfer of Probation Service Investment manage the Fund’s currency hedging contracts in respect members to Greater Manchester Pension Fund. of overseas equity holdings. The market value of these contracts is ** The way we are required to show Fund management costs included within the Custodian balance in the above chart. changed in 2014-15. The comparable 2013-14 figure has been Our investments returned 13% overall during 2014-15, through a re-presented to reflect this. period of uncertainty in financial markets. 20 127 21 Data protection information For contact details please Norfolk County Council is the administering authority see back cover of the Norfolk Pension Fund and is registered as Data Moving Controller under the Data Protection Act 1998. The information you supply or supplied by your employer, administrators of any house? other pension arrangements you have, or HMRC may be kept on computer and will be held no longer than necessary for the purpose of administering your pension rights under the Local Government Please remember to keep us in the picture if Pension Scheme. you move house, or if this booklet didn’t come to the right address. All information is kept secure, whether on paper or on a computer and you have the ● You can fill in and post the form below to us if your address right to see the information the Council is details are not correct or up to date. Our address is on the holding about you – we will charge you a back page of this booklet. small fee for providing this. ● If you have registered to use our online service, you The Council may share your information with can update your address details online (see page 5) third party organisations for the purpose at www.norfolkpensionfund.org . of producing printed Benefit Statements, mailing Newsletters or other communications; with the Pension Fund advisors for actuarial Please use block capitals purposes; or with your current or previous Name...... employers. Apart from this, we will not share your information with National Insurance number...... any other people or organisations for any other purpose unless you consent or the law requires us to. However, the Council will always Please update my address details as follows: share information for the prevention or detection of crime, or the ...... apprehension or prosecution of offenders...... Disclaimer ...... This statement is based on the current provisions of the Local ...... Government Pension Scheme Regulations 2013 as amended and Postcode...... other relevant legislation. This statement is provided for information only and does not give you any legal rights. In the event of any Signed...... Date...... dispute, nothing in it can override the scheme legislation. 22 128 23 Contact us… The Norfolk Pension Fund 4/5th Floor, Lawrence House 5 St Andrews Hill, Norwich NR2 1AD Telephone 01603 495 923 Fax 01603 495 795 Email [email protected] www.norfolkpensionfund.org If you need this booklet in large print, ® audio, Braille, alternative format or in a different language, please contact 01603 495923 or 0344 800 8011 (textphone) 1252 CB 7/15 and we will do our best to help. Printed on paper sourced from sustainable forests using vegetable based inks 129 Appendix D Public Sector Exit Payment Cap Proposed August 2015 Unintended consequences? Her Majesty’s Treasury (HMT) has published proposals for the introduction of a £95,000 limit on the total value of payments made in connection with the termination of a public sector worker’s employment1. The proposed cap would cover a broad range of circumstances, including both voluntary and compulsory termination of employment, and affect most of the possible components of severance packages, including the cost of providing enhanced Douglas Green (unreduced) early retirement benefits. Partner It is this last item, and its application in the LGPS in particular, which has the potential to lead to a number of unintended consequences: 1. The cap will hit many who are not high earners. 2. This may result in sub-optimal Council reorganisations. 3. LGPS Regulations will need to be changed, but how? 4. What is the early retirement “cost” for this purpose? Some of the 5. Things get potentially messy when considering contractors. Government’s thoughts on this Affected LGPS employers (mainly Councils, ALMOs, academies, contractors) may be at a may wish to consider responding to the consultation within the short (27 preliminary August 2015) deadline. stage. Consultation Proposal What is being proposed? The Government proposes to cap the total value of exit payments to employees in the public sector at £95,000, before tax. There are no timescales given, but with the short consultation period it seems that this may apply from April 2016. What benefits does this cover? As well as cash sums such as redundancy payments that are paid to the employee, it would take account of the additional cost to the employer of early payment of retirement benefits. It would not apply to compensation for wrongful or unfair dismissal or for death or injury in the course of employment, or to benefits paid on ill-health early retirement or in circumstances of serious ill health. 1 Consultation on a Public Sector Exit Payment Cap In pension terms this would cover all public service schemes, including NHS, Teachers and Civil Service. However, for the purpose of this note we focus on the Local Government Pension Scheme (LGPS). It is worth noting that current practice varies across the public service schemes for early retirements such as on redundancy, e.g. in many cases in the unfunded schemes part or all of the early retirement strain is met from the member’s own (non-statutory) redundancy payment. Which employers would this apply to? The intention is to apply the cap to central and local government bodies under the control of the UK government, and most non-financial public corporations, as well as Ministers and their Special Advisers. In LGPS terms this means it will apply to Councils, “arms-length” Council operations (ALMOs), academy schools in England, fire & rescue authorities, and possibly contractors (but see below). It would not appear to apply to other types of body, e.g. colleges, universities, charities, community admission bodies, unless they are deemed to be under Westminster control. The Scottish and Welsh governments and the Northern Ireland Executive will have to decide whether to apply similar measures. However, bear in mind that there could be employers under Westminster control which are in the LGPS outside England, and which therefore would be affected by these proposals. Would it be mandatory? The bodies affected would be required to maintain records and publish details of exit payments, annually. The cap could be waived ‘in exceptional circumstances’ with the consent of the relevant Government Minister, Full Council in local authority cases, or a meeting of members if a fire and rescue authority is involved. Authorities would have to publicise their policies on waivers, and disclose any that are made in their annual Statements of Accounts. However, the government has a ‘strong expectation’ that bodies proposed to be outside the scope of the cap on exit payments will set out their own exit cap mechanisms, equivalent to the arrangements proposed here and introduced no later. It is not clear how far this ‘expectation’ extends. Unintended consequence 1 – Who would be affected? This policy was trailed in the Conservative Party’s election manifesto earlier this year, with the implication that the cap would prevent unduly generous severance packages for the best paid public sector workers. However, given the current LGPS early retirement terms, the size of the early retirement cost will depend not only the member’s pensionable pay, but also the number of years early they retire, and their length of service in the LGPS. For instance, suppose we allow for an element of redundancy payment leaving say £80,000 for early retirement strain cost (on typical Hymans Robertson factors). In very broad terms the cap may start to apply for members retiring 5 years early: • On £180,000 pay and 10 years’ service, or • £90,000 pay and 20 years’ service, or • £45,000 pay and 40 years’ service. For individuals retiring 10 years early, the cap would start to apply at levels of pay and service of broadly half the above (e.g. someone on £45,000 pay and 20 years’ service, or £20-25,000 pay with 40 years’ service). Br131iefing Note 02 Public Sector Exit Payment Cap Proposed All the above figures are purely to give an indication of the order of magnitude. The exact impact will vary significantly depending on individual circumstances, and can vary materially because of: • the period of service for that member: different tranches of benefit have different pension ages, a higher pension age will give a higher strain cost, and hence a higher likelihood that the cap is breached; • the impact of the “Rule of 85” and other protections for that member’s accrued benefits etc: this will affect the normal pension age and thus the strain cost; • the basis underlying the actuarial factors (see unintended consequence 4 below). Please let us know if you would like some analysis carried out on your own Fund membership or sample members. Unintended consequence: Many members who would not be classed as particularly high earners will be caught by a £95,000 cap. A possible solution would be to apply the cap only to those on earnings above a certain level, or to apply a two-tier cap (one for the non-pension element and another including the early retirement strain cost). Unintended consequence 2 – Council staff changes Following from the above, the cap could affect the early retirement prospects for many Council staff, particularly the higher paid and/or longer-serving. This would be counterproductive as it could exclude certain staff from early retirement who might otherwise have been part of a headcount reduction exercise. Unintended consequence: Strategic re-structuring exercises may be hampered by forcing Councils to keep on their higher-paid staff (instead of allowing them to retire and bringing in lower-cost replacements) and longest-serving staff (who might be most inclined to leave). Unintended consequence 3 – Early retirement terms under LGPS Regulations By contrast with other public sector pension schemes, the LGPS entitles its members to immediate, unreduced early retirement pensions in various circumstances2. The Government acknowledges this difference, but says that it nevertheless intends that the cap would apply to the LGPS (in England, at least). The consultation appears a little contradictory in that it refers to the fact that “employees would retain the option to take early retirement on unreduced pension, where this is available” but then goes on to declare that “the total employer cost of buying out the reduction in pension and the lump sum redundancy payment should not when taken together exceed the value of the cap”. It is unclear how both these objectives can be reconciled. To allow the cap to apply it is likely that the member will have to bear as much of the additional cost (in the form of reduced benefits) as is necessary to bring the total exit payment within £95,000. This will mean the LGPS Regulations need to be changed to allow this cap to apply in practice in any meaningful way. But what would they be changed to? Any revised system would need to confirm the way in which members and/or employers determine the interplay between redundancy and retirement benefits, in order to meet the cap where relevant. They could either have the capping interplay prescribed in complex administration regulations, or else leave administering authorities to deal with the complex options. 2 If they are dismissed by reason of redundancy or business efficiency—or leave by mutual consent on grounds of business efficiency—having attained the age of 55. Different terms may apply in Scotland and Northern Ireland. Br132iefing Note 03 Public Sector Exit Payment Cap Proposed And if they were to remove the grandfathered retirement rights, or the requirement to unreduced redundancy benefits altogether, one can imagine the Unions’ reaction especially given previous government assurances that there will be no further changes for 25 years. Unintended consequence: The LGPS Regulations will need to be amended for the proposals to work, but whatever these changes are they will bring difficulties of one sort or another. Unintended consequence 4 – What is the “cost”? The consultation refers to the early retirement strain cost as “the financial contribution to the employee’s pension”, which prompts two questions: (i) Can the government confirm that the “cost” relates to a physical cash sum (see below) or a notional amount set on a standardised basis which may therefore differ from what the employer actually contributes to the fund? (ii) If the cost varies from one fund to the next, due to different factors being used, this raises the prospect of two members in identical circumstances in separate LGPS funds, where one is caught by the cap and one isn’t. The different factors could be due to different actuarial advice, or to the factors having been set at different times in the past. The “obvious” answer is to standardise the strain cost factors across all funds, and indeed across the all public service pension schemes. But then each fund has potentially two sets of factors. Unintended consequences: • If standardised factors are not introduced, there is scope for discrepancies between funds; there is also the discrepancy between treatment of early retirements in the unfunded schemes and the LGPS – it will be crucial to ensure similar treatment, and that LGPS members are not in a worse position than their NHS/civil servant/teacher counterparts. • Standardised factors bring their own issues however: does the fund run with two sets of factors (one for exit cost purposes and one for cash contribution purposes) with the added administrative complications that brings? Or does the fund use the standardised factors even where these may not be appropriate for the fund? Unintended consequence 5 – Contractors The consultation document (Question 9) asks for respondents’ thoughts on whether and how the Government could attempt to achieve consistency when public sector employees are transferred to or from the private sector with terms of employment that are carried across under TUPE legislation3. There are a couple of areas of uncertainty which are likely to be of interest to contractors: • Will the changes apply automatically to the employees of admission bodies (or employers that participate in the other public sector schemes under the ‘New Fair Deal’), either under new contracts or under existing contracts that use either of these approaches, or will each contractor have to consult with its staff on the changes? • How will the Government ensure the cap can apply to staff with legacy redundancy rights? If so, will this require private sector employers to introduce equivalent cost caps where staff transferred to the private sector before the recent reforms? 3 The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006 No. 246). Briefing Note 04 133 Public Sector Exit Payment Cap Proposed European case law suggests that it would not be easy for the Government to tamper with any enhanced early retirement terms enjoyed by employees who have transferred in circumstances covered by TUPE. Unintended consequence: If the Government were to introduce the cap, and also found a way for previous TUPE-protected rights also to fall within scope of the cap, this would affect contractor companies in the private sector, not just the public sector. Next Steps Responses to the consultation proposals should be submitted by 27 August 2015. The changes will be implemented through clauses in an Enterprise Bill, in the 2015/16 parliamentary session. A future consultation exercise will propose further changes to the calculation of compensation and employer-funded early retirement in redundancy cases. Summary The level of detail given and the questions asked suggest that some of the Government’s thoughts on this proposal—particularly those related to early retirement costs—are at a preliminary stage. The principles are rooted in a political manifesto pledge – on which we do not comment either way – but their implementation in practice is more complex. For example, staff who would not normally be considered “high earners” could trigger the cap by being made redundant, and this may have knock-on effects on how a Council implements broader cost reduction strategies. Furthermore, it should be appreciated that the costs of unreduced early retirement pensions alone could exceed £95,000 in some cases: • The Government says that employees would still retain an option to retire early on unreduced pension, but does not specify what that means for LGPS Regulations; • The consultation does not indicate an appreciation by Government that “funding” is different from “cost”: questions therefore arise on how the figure is calculated for this cap’s purpose. Finally, it is not clear how the new policy would apply to the employees of admission bodies or employers that participate in the other public sector schemes under the ‘New Fair Deal’. European case law suggests that it would not be easy for the Government to tamper with any enhanced early retirement terms enjoyed by employees who have transferred in circumstances covered by TUPE. London | Birmingham | Glasgow | Edinburgh T 020 7082 6000 | www.hymans.co.uk | www.clubvita.co.uk This communication has been compiled by Hymans Robertson LLP, and is based upon their understanding of legislation and events as at the date of publication. It is designed to be a general information summary and may be subject to change. It is not a definitive analysis of the subject covered or specific to the circumstances of any particular employer, pension scheme or individual. The information contained is not intended to constitute advice, and should not be considered a substitute for specific advice in relation to individual circumstances. Where the subject of this document involves legal issues you may wish to take legal advice. Hymans Robertson LLP accepts no liability for errors or omissions or reliance on any statement or opinion. Hymans Robertson LLP (registered in England and Wales - One London Wall, London EC2Y 5EA - OC310282 ) is authorised and regulated by the Financial Conduct Authority. A member of Abelica Global. © Hymans Robertson LLP. 134 Appendix E Update on Bulk Transfer Values in Progress Estimated Transfer Name Completion State of Play Date Date Admission Draft terms have been agreed between Agreement is the Fund Actuary and GAD. There is in place. The an outstanding query with the NHS NHS is Trust regarding the exact membership Norfolk County November currently covered by the transfer arrangements. Council to NHS 2008 offering We continue to chase and are awaiting admission to a response. the staff that originally transferred. As part of its partnership arrangement with LGSS (delivery vehicle for Northamptonshire and Cambridgeshire County Councils), Norwich City Council have transferred approximately 130 staff with current membership of the Norfolk Pension Fund to Cambridgeshire County Council where they will become members of the Cambridgeshire Pension Fund (as employees of Cambridgeshire County Council). We have issued an Actuary’s Letter to the Actuary of the receiving fund setting out the terms under which To a bulk transfer will be made. Cambridgeshire 30 December Pension Fund April 2012 2015 The Cambridgeshire Pension Fund (Norwich City (CPF) has accepted the terms of the Council – LGSS) Actuary’s letter. They are currently performing final checks to agree membership data. When the process around data is completed by CPF we will agree a date for the payment of the bulk transfer. The estimated value of the transfer is £4.5 million. 135 The main transfer payment to the Greater Manchester Pension Fund To Greater (GMPF) was made in February 2015 Manchester (£82.1 million). Pension Fund 1 July February Transforming 2014 2015 A final “truing up” payment has now Rehabilitation been received from GMPF (£0.2 (Probation) million) and the transfer is now complete. London Borough The bulk transfer payment (£0.9 of Kingston September million) was made to the Kingston Fund April 2013 (NPS South 2015 on 19th August 2015. This transfer is East) now complete. The Valuation Tribunal Service (VTS) has initiated a national exercise to consolidate its multiple LGPS fund liabilities in a single fund (the London Pension Fund Authority). The final regulatory approach is to be confirmed but we understand that the transfer will be on a “share of fund basis” with all assets and liabilities transferring from London Pension the ceding funds to the LPFA in respect Fund Authority of active, pensioner and deferred (Valuation TBC TBC members. Tribunal Service) The VTS has not had any active membership in the Norfolk Fund for a number of years. At the last formal valuation (31 March 2013) it had 2 deferred and 4 pensioner members. At this point its attributable assets were £736,000 and its liabilities were £769,000. The deficit at this point was paid in full during the 2014-15 financial year (£32,000) Staff involved in benefit fraud investigation at district councils are being transferred to DWP as part of the Principle Civil Single Fraud Investigation Service. Service Pension Five of the councils in the Norfolk Fund Scheme (DWP – April- are impacted by these staff transfers transfer of the September TBC that are happening in multiple tranches Single Fraud 2015 between April 2015 and September Investigation 2015. The total number of staff Service) involved is small (approximately 13 active LGPS members). 136 The majority of LGPS funds are impacted by this transfer. To avoid the cost and complication of multiple transfer negotiations the LGPS sub- committee of the Association of Consulting Actuaries (ACA) have been engaged with DWP and GAD to reach agreement on transfer terms. The intention is to determine a common set of transfer terms which can be actioned by each Administering Authority, without the need for extensive involvement of the local actuary. This negotiation and discussion is ongoing and has recently also involved the LGA. In addition to this transfer we are also working on a number of outsourcing agreements that potentially involve the transfer of staff under TUPE with both employers being members of the Norfolk Pension Fund. 137 Appendix F Representation on behalf of the Pension Fund During the period since the last Pension Committee, the following meetings and events took place: Date What Who went July 2015 10 Framework viability meeting Jo Quarterman, Alex Younger 13 Shadow Advisory Board Nicola Mark 14 Local Pension Board Nicola Mark, Jo Quarterman Goldman Sachs – mandate review 15 Alex Younger meeting 16 NAPF LA Sub-Group Nicola Mark 16 DCLG – Budget and Pooling Debate Nicola Mark, Jo Quarterman 17 Essex Pension Board Nicola Mark, Jo Quarterman Alex Younger, Glenn Cossey, 20 HSBC – strategy & review meeting Robert Mayes Mandate Review and Pension Alex Younger, Glenn Cossey, 20 Committee pre-meets (Fidelity & Robert Mayes Wellington) 23 Wellington – ESG Review (telecon) Alex Younger 27 Henderson – mandate review meeting Alex Younger 27 LGPS Annual Report Working Group Alex Younger August 2015 Hymans Robertson Roundtable – reform 4 Alex Younger consultation (telecon) 17 Pooled Investment Roundtable (LGA) Nicola Mark, Alex Younger 21 Pooled Investment in the LGPS (LGA) Nicola Mark, Alex Younger 21 Aviva – mandate review meeting Alex Younger In addition to these meetings we have held a number of meetings with managers with whom we do not have a current commercial relationship, meetings in respect of transition and mandate changes and with various fund employers on individual issues. Pensions Committee – 8 September 2015 138 The following forthcoming meetings and events have been identified as of possible interest to trustees or officers of the fund: Date What September 2015 09 -11 LGC Investment Summit – Celtic Manor October 2015 09 Eversheds - Public Sector Conference DCLG – Department for Communities and Local Government LGC – Local Government Chronicle NAPF – The National Association of Pension Funds Pensions Committee – 8 September 2015 139 Appendix G Norfolk Pension Fund – Pensions Committee Forward Plan (September 2015) December 2015 February 2016 June 2016 September 2016 Administration Report Administration Report Administration Report Administration Report Efficiency & Value for Money Pension Fund Budget Report Norfolk Audit Services Annual Draft Annual Report and Paper (2016-17 Budget Internal Audit Report Accounts preparation) Risk Register Report Corporate Governance and Risk Register Report Corporate Governance and Shareholder Engagement Shareholder Engagement Report Report Selection of Investment 2016 Actuarial Valuation Advisor - framework mini- Planning (Presentation from competition. Fund Actuary) (May be subject to slippage due to investment related priorities or the need to refresh the LGPS Investment Advisory framework). Investment Managers: Investment Managers: Investment Managers: Investment Managers: • UK Equity Manager(s) • Currency Managers • Capital • Fidelity • Private Equity • Aviva Investors • Fixed Income Managers • Wellington managers 140 Report to Pensions Committee 8 September 2015 Item No 14 Draft Pension Fund Annual Report and Accounts Joint Report by the Executive Director of Finance and Head of Pensions 1. Introduction 1.1 This report presents the draft Annual Report and Accounts of the Norfolk Pension Fund for the year-ended 31 March 2015, for consideration by the Committee. The accounts section in particular should be noted by the Committee prior to presentation to the County Council’s Audit Committee for approval. 1.2 The Annual Report has been prepared in accordance with guidance published by the Chartered Institute of Public Finance and Accountancy (CIPFA). The accounts have been prepared using the CIPFA example accounts and disclosure checklist, and in accordance with the requirements of the Code of Practice on Local Authority Accounting in the United Kingdom 2014-15 governing the preparation of the 2014-15 financial statements for Local Government Pension Scheme Funds. 1.3 The preparation of a Pension Fund Annual Report is a requirement of the Local Government Pension Scheme Regulations, which also prescribe certain items for inclusion. The regulations require that an annual report is published by the Fund by 1st December following the year-end. The accounts are prepared as part of the Fund’s own annual report and for inclusion within the Statement of Accounts of Norfolk County Council as Administering Authority of the Norfolk Pension Fund. 1.4 Previously external audit of the fund was part of the overall Administering authority external audit process. However, for the last four years the Fund has been subject to separate external audit appointment. This is the third year EY (formerly Ernst and Young) have audited the Fund. They have completed their field work and we are not aware of any material issues arising. 1.5 The Terms of Reference of the Pensions Committee provide the following: i. That the Committee receives and considers the draft financial statements for the Norfolk Pension Fund ii. That the Committee comments on the financial statements and makes recommendation to the Audit Committee that they be approved/not approved 1.6 This report also includes at Appendix B (to follow), the EY ISA 260 Report for the Norfolk Pension Fund that details the audit results. Members are invited to consider the report before EY issue their audit opinion. 1.7 In addition to the ISA 260 Report, the Pension Fund is also required to provide a letter of representation to the external auditors before the auditor issues their opinion. 141 1.8 The letter of representation covers matters material to the financial statements and possible non-compliance with laws and regulations, including any changes since the statement of accounts were approved for Audit by the Executive Director of Finance on 30th June. 1.9 In accordance with these requirements the Executive Director of Finance has, following consultation with the Head of Pensions, written the letter which is attached to this report at Appendix C (to follow). The auditors require that the letter is signed by the person with specific responsibility for the financial statements, which for the Pension Committee is the Executive Director of Finance, and formally acknowledged as being correct by “those charged with governance” by being signed by the Chair of the Pensions Committee. 2. Approval Timetable 2.1 The Accounts and Audit (England) Regulations 2011 require the accounts to be approved by members by 30th September. 2.2 Prior to Member approval, the Statement of Accounts of the Administering Authority (incorporating the accounts of the Fund) must be certified by the responsible financial officer (Executive Director of Finance) on 30th June prior to their submission to EY for audit. 2.3 On 24th September 2015 the Pension Fund financial statements will be presented to the Audit Committee for approval as part of the Norfolk County Council Statement of Accounts. 2.4 The Annual Report incorporating the accounts will be published after approval of the accounts by Audit Committee and sign off by the Executive Director of Finance and EY, and prior to 1st December 2015 as required by LGPS regulations. 3. National LGPS Procurement Frameworks project 2014-15 Outturn 3.1 At the February meeting, Pension Committee received as part of the budget report details of the forecasts for National LGPS Procurement Frameworks project. The outturn position which is separate from Pension Fund Accounts is reported to Committee in September. 142 3.2 The table below provides an updated accounting summary outturn position for 2014- 15. Figures with a minus are surplus amounts. 2014-15 Outturn Expenditure and 2014-15 Forecast 2014-15 Variance Income (Surplus)/Deficit reported to Outturn £ Pension £ Committee in February c/fwd £ Custodian Consultancy Framework -52,121 -61,611 -9,490 Investment Consultancy Framework -64,400 -70,333 -5,933 Actuarial & benefit Consultancy -13,789 -19,541 -5,752 Framework Legal Framework -6,000 -4,989 1,011 Total Surplus -136,310 -156,474 -20,164 3.3 The increased surplus on the Custody Consultancy Framework of -£9,490 relates mainly to additional income due to one more Fund joining the framework than was anticipated for the year (£-8K). 3.4 The increased surplus on the Investment Consultancy Framework of -£5,933 relates mainly to additional rebate generated from suppliers as a result of call off spend by Funds using the Framework (-£6K). 3.5 The increased surplus on the Actuarial Benefit Consultancy Framework of -£5,752 relates to additional income due to two more Funds joining the framework than was anticipated for the year (£-4K) and additional rebate generated from suppliers as a result of call off spend by Funds using the Framework (-£2K). 3.6 The decreased surplus on the Legal Framework of -£1,011 reflects an earlier than anticipated increase in running costs for the framework (-£1.5K), offset by one Fund joining the Framework and a small rebate generated from suppliers as a result of call off spend by Funds using the Framework. This framework will continue to be monitored closely. 4. Resource Implications 4.1 There are no additional resource implications. 5. Other Implications 5.1 Equality Impact Assessment (EqIA) There are no issues relevant to equality in this report. 5.2 Any Other Implications: Officers have considered all the implications which members should be aware of. Apart from those listed in the report (above), there are no other implications to take into account. 143 6. Section 17 – Crime and Disorder Act 6.1 There are no implications under the Crime and Disorder Act. 7. Recommendation 7.1 It is recommended that the Committee receives and considers the draft 2014-15 Annual Report and Accounts of the Norfolk Pension Fund and makes recommendation to the Audit Committee that the accounts be approved. 7.2 That the Pension Committee should consider the EY ISA 260 Report. 7.3 It is recommended that the Committee endorses the letter of representation and that the Chair of the Pension Committee and Executive Director of Finance sign it on behalf of the Pension Fund. Background Papers Appendix A - Draft Annual Report and Accounts 2014-15 Appendix B – ISA 260 Report 2014-15 (to follow) Appendix C - Letter of Representation 2014-15 (to follow) Officer Contact If you have any questions about matters contained in this paper please get in touch with: Nicola Mark Tel no: 01603 222171 email address: [email protected] If you need this Report in large print, audio, Braille, alternative format or in a different language please contact Tim Shaw on 0344 800 8020 or 0344 800 8011 (textphone) and we will do our best to help. 144 Appendix A Annual Report and Accounts 2014-15 1 145 Contents Foreword from the Chairman of the Pensions Committee, Councillor Steve Morphew ...... 4 Introduction from the Head of the Norfolk Pension Fund, Nicola Mark ...... 5 Contact Us ...... 7 Management Structure ...... 8 The Local Government Pension Scheme ...... 9 Governance ...... 10 Scheme Administration ...... 14 Risk management ...... 20 Myners Compliance ...... 20 Communications ...... 21 Financial Performance ...... 22 Investment Policy and Performance ...... 22 National representation and involvement ...... 29 2014-15 Statement of Accounts ...... 30 Statement of Responsibilities ...... 31 Independent Auditor’s Report ...... 32 Revenue and Fund Account ...... 34 Net Assets Statement...... 35 Notes to the Accounts ...... 36 1. Description of Fund ...... 36 2. Basis of Preparation ...... 41 3. Summary of Significant Accounting Policies ...... 42 4. Critical Judgements in Applying Accounting Policies ...... 48 5. Assumptions Made About the Future and Other Major Sources of Estimation Uncertainty ...... 49 6. Events after the Balance Sheet Date ...... 50 7. Contributions Receivable ...... 50 8. Transfers In From Other Pension Funds ...... 52 9. Benefits Payable ...... 53 10. Payments To and On Account of Leavers ...... 54 11. Management Expenses ...... 54 2 146 12. Investment Income ...... 55 13. Taxes on Income ...... 56 14. Investment Expenses ...... 56 15. Investments ...... 57 16. Financial Instruments ...... 70 17. Nature and Extent of Risks Arising From Financial Instruments ...... 73 18. Funding Arrangements ...... 81 19. Actuarial Present Value of Promised Retirement Benefits ...... 83 20. Current Assets...... 85 21. Current Liabilities ...... 87 22. Additional Voluntary Contributions ...... 88 23. Related Party Transactions ...... 88 24. Contractual Commitments ...... 90 25. Contingent Assets ...... 91 Appendices ...... 92 Appendix I – Participating Employers ...... 92 Appendix II – Disclosure Regulations ...... 96 Appendix III – The Fund ...... 97 Appendix IV – Governance Compliance Statement ...... 98 Appendix V – Actuarial Statement for 2014-15 by Hymans Robertson LLP ...... 103 Appendix VI – Glossary ...... 106 If you need this document in large print, audio, Braille, alternative format or in a different language please contact 01603 222824 or 0344 800 8011(textphone) and we will do our best to help. 3 147 Foreword from the Chairman of the Pensions Committee, Councillor Steve Morphew As Chairman of the Pensions Committee with responsibility for overseeing the investment management and administration of the Norfolk Pension Fund, I am once again pleased to introduce the 2015 Annual Report and Statement of Accounts. I said last year that we are witnessing one of the most challenging periods in modern times within the pensions arena. The wide reaching and radical reforms – to the State Pension and all public service pensions schemes, alongside the introduction of auto enrolment and flexible access to pensions savings under the ‘Freedom and Choice’ initiative - will have an impact for generations to come. I stand by this again this year. The baton passed to us, and that we in time will pass on, is to ensure that those 78,000 people who are members of our scheme and their 233 employers who participate in the Norfolk Pension Fund can have confidence that we are managing the scheme effectively and efficiently on their behalf; that they can rely on us to support them in their decision making about the LGPS; and as a result our members and future members – many of whom are relatively low paid and part time – have a stable income in retirement, linked to inflation. So good governance should be at the heart of any pension fund. Quite rightly therefore the government is shining a greater light on governance across all public sector schemes. We welcome this. The National Scheme Advisory Board has published its second aggregated annual report and is developing a suite of LGPS pension fund ‘health’ indicators. This evidential approach will enable us to more effectively benchmark the overall health of the scheme relative to other large public or private pension schemes. Locally we have established our Pensions Oversight Board, as required by the Public Service Pensions Act 2013. We look forward to working closely with our new local pension board – made up of scheme member and employer representatives – who are charged with assisting us to ensure that we continue to manage the scheme well on your behalf. The introduction of the Pension Regulators new Code of Practice for Public Sector Schemes will also help ensure consistency across the sector. Unusually within the public sector, the LGPS is a funded scheme. Over the last year, the Norfolk Pension Funds' assets have increased by nearly £300, while paying pension benefits to our members of £120m; primarily into the local economy where most of our members live. Our investments returned 13% over the last year and performance is ahead of our benchmark over the last three and five year time periods. 4 148 The Norfolk Pension Fund’s Councillors and Officers continue to proactively contribute to the national reform debate, with the purpose of securing an affordable, viable scheme for the future. May I once again take this opportunity to record my sincere thanks to both my colleagues on Pension Committee and our advisors for their commitment and support over the last year, and of course to our employers and the Norfolk Pension Fund team. We are fortunate in Norfolk to have a combination of experience, expertise and commitment to help steer the LGPS and the Fund and its stakeholders through these challenging times. Introduction from the Head of the Norfolk Pension Fund, Nicola Mark Each year when I sit down to write this I look back and think, phew, what a year – and this year has been no different, and already the year ahead is shaping up to be no less challenging! Within the last year within the LGPS we’ve seen the implementation of the new career average scheme and the introduction of the National Scheme Advisory Board and Local Pension Boards. Across the public sector we have a new Regulator and Code of Practice and of course more widely we have seen radical reform of pensions with the Governments Freedom and Choice agenda and changes to the State Pension. Reform continues, with the on-going challenges of securing affordability and efficiency within the LGPS. In partnership with colleagues in many other Funds, the Norfolk Pension Fund has been and continues to be committed to working collaboratively to secure maximum advantage for our own Fund and the wider LGPS, through the National LGPS Frameworks project and other strong initiatives. We are locally and nationally committed and accountable. So as administrators we have to work hard to keep on top of things, but so do our employers and scheme members! Supporting all our stakeholders to make timely and well informed decisions has never been more important. 5 149 So what keeps us going through all this? For me it is knowing the difference that a good pension scheme, like the LGPS, makes to people, sometimes when they are at their most vulnerable. Forget the old headline about gold plated pensions. We know the average pension paid in the LGPS is around £5000 per year, and this regular income can and does makes a huge difference to our retired members and dependants. Pensions are a long term, shared responsibility between us as scheme administrators and all our stakeholders. So we must all – whether nationally or locally or as individual scheme members - take every care we can to make well considered and informed decisions. After all, the decisions we make today will have long term and far reaching impacts – and sometimes there is no going back! I would like to thank the Chairman, trustees and of course the Norfolk Pension Fund staff for their commitment to ensuring we continue to deliver a successful Local Government Pension Scheme. 6 150 Contact Us General enquiries about this document: Alex Younger Pension Fund Investment & Actuarial Services Manager Tel: 01603 222995 Fax: 01603 228898 Email: [email protected] Or: Robert Mayes Pension Fund Accountant Tel: 01603 222870 Fax: 01603 228898 Email: [email protected] Enquiries about pension benefits: Norfolk Pension Fund Tel: 01603 495923 Fax: 01603 495795 Email: [email protected] Post: Norfolk Pension Fund 5th Floor, Lawrence House 5 St Andrews Hill Norwich NR2 1AD The Pension Administration Team offer dedicated helplines, operated by experienced staff. The team can help with all aspects of scheme membership and benefits for active, deferred and pensioner members. General Enquiries: 01603 495923 Retired Members helpline: 01603 495788 Opening hours: Monday to Friday, 8.45am – 5.30pm (4.30pm on Friday) Website: www.norfolkpensionfund.org We have referred to a number of documents in this report that are available online. If you are unable to access any of these documents, or would like a hard copy, please don’t hesitate to contact us using the above General Enquiries telephone number. 7 151 Management Structure Administering Authority: Norfolk County Council (NCC) County Hall Martineau Lane Norwich NR1 2DW Scheme Administrator: Simon George, Executive Director of Finance (NCC) Norfolk Pension Fund Officers: Nicola Mark, Head of the Norfolk Pension Fund Glenn Cossey, Chief Investment Manager Alex Younger, Pension Fund Investment & Actuarial Services Manager Mark Alexander, Pensions Manager Legal Advisors: nplaw (Norfolk Public Law) Fund Custodian: HSBC Fund Actuary: Hymans Robertson LLP Investment Advisor: Hymans Robertson LLP Fund Managers: Aviva Investors Berenberg Bank Baillie Gifford & Co Capital International Limited Fidelity Pensions Management HarbourVest Partners Henderson Global Investors Goldman Sachs Asset Management Legal & General Investment Management M&G Investments Insight Investment (Pareto) Management Sarasin & Partners SL Capital Partners (Standard Life) Wellington Bankers: The Co-operative Bank (to 2 August 2015) Barclays Bank (from 3 August 2015) Fund Auditor: EY Performance Measurement: WM AVC Providers: Clerical Medical Prudential Equitable Life (legacy only) 8 152 The Local Government Pension Scheme The Local Government Pension Scheme (LGPS) is a statutory pension scheme. This means that it is very secure as its benefits are defined and set out in law. Under regulation 57 of The Local Government Pension Scheme Regulations 2013, all LGPS Funds are required to publish an Annual Report. This document is the Annual Report of the Norfolk Pension Fund for 2014-15. The LGPS in brief • The LGPS is one of the largest public sector pension schemes in the UK, with 4.6 million members • It is a nationwide pension scheme for people working in local government or for other types of employer participating in the scheme • The LGPS is administered locally by 99 regional pension funds – one of which is the Norfolk Pension Fund • It is a funded scheme, which means that the Fund income and assets are invested to meet future pension fund commitments • Benefits are defined and related to members’ salaries and years of service, so they are not dependant on investment performance • The scheme is regulated by Parliament • The LGPS in England and Wales changed on 1 April 2014. It is now a ‘Career Average’ scheme for benefits built up from 1 April 2014. All benefits built up before this date are protected as ‘Final Salary’. For more information visit www.norfolkpensionfund.org or www.lgps2014.org 9 153 Governance Governance Statement The Norfolk Pension Fund publishes a Governance Statement each year. The latest version of this document can be viewed on our website at www.norfolkpensionfund.org. The Governance Statement reflects the Fund’s commitment to transparency and engagement with employers and scheme members. We monitor, review and consult where appropriate to ensure that our governance arrangements continue to be effective and relevant. Administering Authority Norfolk County Council (NCC) is the Administering Authority of the Norfolk Pension Fund and administers the LGPS on behalf of its participating employers. • NCC has delegated its pensions functions to the Pensions Committee • NCC has delegated responsibility for the administration and financial accounting of the Fund to the Executive Director of Finance • This report supports NCC’s Annual Governance Statement, which is published in the Annual Statement of Accounts Governance Compliance The Norfolk Pension Fund is fully compliant with the principles set out in the Local Government Pension Scheme Regulations 2013 (as amended) Regulation 55. The full compliance statement is at Appendix IV. 10 154 Pensions Committee The Pensions Committee is responsible for the strategic management of the assets of the Fund and the administration of benefits. The Pensions Committee meets quarterly to: • Ensure compliance with legislation and best practice • Determine policy for the investment, funding and administration of the Fund • Monitor performance across all aspects of the service • Consider issues arising and make decisions to secure efficient and effective performance and service delivery • Appoint and monitor advisors • Ensure that arrangements are in place for consultation with stakeholders as necessary Pensions Committee Membership Chair: Norfolk County Councillor Cllr Steve Morphew Vice Chair: District Councillor (co-opted by Cllr Alan Waters the Local Government Association) Norfolk County Councillor Cllr Jason Law Norfolk County Councillor Cllr David Ramsbotham Norfolk County Councillor Cllr Martin Storey Norfolk County Councillor Cllr Judith Virgo District Councillor (co-opted by Cllr John Fuller the Local Government Association) Staff Representative Steve Aspin Observer Open to all participating employers Other attendees: Administrator of the Fund Simon George (NCC Executive Director of Finance) Head of the Norfolk Pension Fund Nicola Mark Investment Advisor to the Fund Ronnie Bowie / (Hymans Robertson LLP) Scott Donaldson 11 155 Pensions Committee Training The training needs of Committee members are considered alongside the 12-month Committee agenda planning process. Training is business driven, therefore the programme is flexible. This allows us to effectively align training with operational needs and current agenda items, helping to support member decision making. Member training is supplemented by attendance at Local Government Employers (LGE) and other associated events. A training log is maintained. Committee members also attend an annual bespoke and comprehensive two-day knowledge and understanding event, where they talk to leading experts about all aspects of LGPS investment and governance along with any current issues. In 2014, this included meeting Hymans Robertson for an in-depth review of the Fund’s Strategic Asset Allocation and a discussion about potential changes for the future. On day two there were sessions with the Department for Communities and Local Government on structural reform and governance, HarbourVest private equity investment, and Berenberg Bank on currency management and a view of the global economy. Conflict of interests There is a standing agenda item at each Pensions Committee meeting for Members to declare any interests: “If you have Disclosable Pecuniary Interest in a matter to be considered at the meeting and that interest is on your Register of Interests you must not speak or vote on that matter. If you have a Disclosable Pecuniary Interest in a matter to be considered at the meeting and that interest is not on your Register of Interests you must declare that interest at the meeting and not speak or vote on the matter. In either case you may remain in the room where the meeting is taking place. If you consider that it would be inappropriate in the circumstances to remain in the room, you may leave while the matter is dealt with. If you do not have a Disclosable Pecuniary Interest you may nevertheless have an Other Interest in a matter to be discussed if it affects: • your wellbeing or financial position • that of your family or close friends • that of a club or society in which you have a management role • that of another public body of which you are a member to a greater extent than others in your ward If that is the case then you must declare such an interest but can speak and vote on the matter.” Pensions Committee Agenda Standing Item 12 156 Accountability and Transparency Pensions Committee agendas, reports and minutes are published on the Norfolk County Council website at www.norfolk.gov.uk/committees under Pensions Committee. Pensions Committee meetings are open to members of the public. Reference Material The following documents can be viewed or downloaded from the Norfolk Pension Fund’s website at www.norfolkpensionfund.org: • Annual Report and Accounts • Communication and Customer Care Strategy • Employers Newsletters • Funding Strategy Statement • Governance Strategy Statement • Primetime (retired members newsletter) • Sample Annual Benefit Statements • Statement of Investment Principles • Voting Records In addition, the following documents are available from the Norfolk Pension Fund: • Confidentiality Policy • Data Protection Policy • Governance Compliance Statement • Information Security Policy The Norfolk Pension Fund has a service level agreement with Norfolk County Council. Service standards are set out within Fund documentation. The Norfolk Pension Fund has not used powers to seek compensation from employers in respect of any breaches of standards, preferring to work with employers to improve standards and performance. 13 157 Scheme Administration The Norfolk Pension Fund Team The Norfolk Pension Fund is managed and administered from its central Norwich offices at Lawrence House. All aspects of the pension service are managed in-house, including administration and investments. This holistic approach delivers benefits to the service as experience and skills are widely shared, extending knowledge and resilience. The Pensions Team is accountable to the Pensions Committee, participating employers and scheme members. The team are fully committed to providing a quality service to meet the needs of the Fund’s various stakeholders and to delivering excellent customer care. The Pensions Team administer the Norfolk Pension Fund in accordance with legislative requirements, including: • Setting the strategic direction for all aspects of the service • Managing and overseeing the investment of Fund monies • Monitoring investment performance • Preparing and maintaining Pension Fund accounts • Supporting the Trustees of the Pension Fund in their decision making • The administration of pensions records, including the preparation and distribution of the Annual Benefit Statements to all scheme members • The timely collection of contributions • The calculation and payment of pensions, including the administration of the annual pensions increase • Advice and guidance to scheme members • Advice and guidance to employers • Pensions administration services for the Fire-fighters Pension Scheme / New Fire- fighters Pension Scheme • Early retirement schemes for Fund employers • Early retirement schemes for Norfolk LEA Teachers and Colleges 14 158 Operational costs The Fund’s operational financial performance is reviewed by the Pensions Committee, who approves the annual budget. Actual spend is monitored throughout the year by the Fund’s management team and is reported in the Annual Accounts. Key Performance Indicators Norfolk Pension Fund takes part in the annual Chartered Institute of Public Finance and Accountancy (CIPFA) Pensions Administration Benchmarking Club. Results of the Key Performance Indicators are published each September, for the previous financial year (1 April to 31 March). The results from 2014-15 are detailed in the chart below: (2014-15 results expected early September 2015) Task Target Norfolk Results Club Average Letter detailing transfer-in quote TBC TBC TBC Letter detailing transfer-out quote TBC TBC TBC Process refund and issue payment voucher TBC TBC TBC Letter notifying estimate of retirement benefit TBC TBC TBC Letter notifying actual retirement benefit TBC TBC TBC Process and pay lump sum retirement grant TBC TBC TBC Letter acknowledging death of member TBC TBC TBC Letter notifying amount of dependant’s benefits TBC TBC TBC Calculate and notify deferred benefits TBC TBC TBC We use this data to target areas of improvement in our service provision. It helps us to understand the specific service pressures that the Fund faces and to operate as effectively and efficiently as we can. Customer Satisfaction We gather feedback on our service from our customers that help us identify areas of improvement and opportunities for efficiency. How satisfied were you with LGPS 2014 Pensions Clinics the service you received from Presentations Oct/Nov 2014 Norfolk Pension Fund? Mar/Apr 2014 Very satisfied 40% 90% Satisfied 58% 10% Neither satisfied or dissatisfied 1.5% - Dissatisfied 0.5% - Very dissatisfied - - 15 159 Key Staffing Indicators The annual CIPFA Pensions Administration Benchmarking Club also gives us information on Key Staffing Indicators, such as staff turnover and the ratio of staff to scheme members. The results for 2014-15 are detailed in the chart below: (2014-15 results expected early September 2015) 2010-11 2011-12 2012-13 2013-14 2014-15 Staff turnover Joining 0 0.0% 1 4.2% 1 3.8% 2 7.0% TBC TBC Leaving 3 11.9% 3 12.7% 1 3.8% 0 0.0% TBC TBC Total staff (FTE) 25.3 23.7 26.5 28.5 TBC LGPS Admin Staff (FTE) 20.3 18.7 20 22 TBC Members per Staff (FTE) 3221 3613 3541 3405 TBC Staff to member ratio 1:159 1:193 1:177 1:155 TBC (FTE) = Full-time equivalent Professional Development We consider the people who work for us as one of the Norfolk Pension Fund’s biggest assets and value them accordingly: • We invest in the continuing professional development of staff, for the benefit of our stakeholders and the Fund overall • We operate a standard appraisal process across the team, linked into the Fund’s service plan • Incremental pay awards are directly linked to performance Service Planning We operate within a three-year Service Development Plan. This is shared with all of the team and linked into the performance appraisal process. 16 160 Data Security Norfolk Pension Fund is responsible for a lot of personal data and sensitive information. We have the following arrangements in place to safeguard this data: • All staff are regularly made aware of the NCC policies in respect of Confidentiality, Data Protection and Information Security • New staff have these responsibilities and policies explained to them as part of their induction and their understanding is checked • All administration data is stored electronically and paper records are safely destroyed • Encrypted laptops are provided to all staff who work away from the office, as part of their regular role or as part of our business continuity plan • Where data has to be transferred off site we use either secure FTP, VPN, secure email or encrypted storage devices • Norfolk Pension Fund staff have access to the secure Government Connect network Equality and Diversity Norfolk Pension Fund has a workforce that reflects and is part of the community it serves. It is the policy of Norfolk County Council to ensure that all its employees are selected, trained and promoted on the basis of their ability, the requirements of the job and other similar non-discriminatory criteria. All employment decisions are based purely on relevant and objective criteria. We aim to deliver accessible, high-quality and value for money services to all our customers, without discrimination on grounds of group memberships; for example sex, race, disability, sexual orientation, religion, belief or age. Internal Dispute Resolution Procedure We operate an Internal Dispute Resolution Procedure (IDRP) which is defined by statute. This is used where a member disagrees with the benefits awarded or a decision made by their employer which affected their benefits. Full details of the procedure can be found in the forms and publications area of our website at www.norfolkpensionfund.org. There were no IDRPs logged against Norfolk Pension Fund during 2014-15. 17 161 Analysis of membership 31 March 2010-11 2011-12 2012-13 2013-14 2014-15 Active 27,313 25,991 26,439 27,254 27,638 Deferred 20,909 22,773 24,535 26,776 29,125 Pensioner 17,563 18,796 19,851 20,887 21,247 Total 65,785 67,560 70,825 74,907 78,010 Age profile The following charts show the age profile of active, deferred and retired scheme members: 18 162 Breakdown of retirements 1,192 scheme members retired in 2014-15, broken down as follows: 19 163 Risk management Norfolk Pension Fund maintains a Risk Register and Business Continuity Plan which are regularly monitored and reviewed: • The Fund’s management team regularly review and update the Risk Register • All risks are considered and monitored in light of their likelihood and impact, with any mitigating action taken as necessary • The Risk Register is also reviewed twice a year by the Pensions Committee • Pension Fund Officers regularly monitor and review investment risk and performance • The Pensions Committee review investment risk and performance quarterly and meet with investment managers at least once a year to discuss their performance • Hymans Robertson LLP provide advice and support to both the Pensions Committee and Fund Officers • A summary of the key risks and controls in place to mitigate investment risks are included in our Funding Strategy Statement, which is available in the publications section of our website at www.norfolkpensionfund.org • Third party risks such as payments of contributions are robustly monitored. Assurance over third party operations is provided by obtaining and reviewing formal third party Internal Control reports prepared under the appropriate audit regime • An on-going framework of inspection and review by the Fund’s internal auditors (Norfolk Audit Services) and external auditors (E&Y) supports and assists with the management of risks • Further information on the nature and extent of risks arising from financial instruments is detailed in note 17 of the accounts that accompany this report Myners Compliance The Norfolk Pension Fund complies with the six revised Myners Principles. Norfolk Audit Services carried out an audit of compliance with Myners Principles in October and November 2010. This was part of the overall 2010-11 audit plan as agreed with the Head of Finance and the Head of the Norfolk Pension Fund. The results of this audit found that the Fund’s internal controls over compliance with Myners Principles are ‘Acceptable’. A summary of our level of compliance is included in our Statement of Investment Principles which is available online at www.norfolkpensionfund.org. 20 164 Communications The Norfolk Pension Fund is committed to delivering a consistently high level of performance and customer service. Excellent communication is core to this commitment. In all our communications we aim to: • Provide clear, relevant, accurate, accessible and timely information • Carefully listen, consider and respond to communications we receive • Use plain English where possible and avoid unnecessary jargon • Use the communication method that best suits the audience and the information being passed on How we do all of this is set out in our Customer Care and Communication Strategy Statement, which can be found on our website at www.norfolkpensionfund.org. The Statement sets out who our main customers and contacts are, detailing how and when we communicate with them. We continually review and monitor our communications and the Statement is formally reviewed and endorsed each year by the Pensions Committee. Online services We have our own website at www.norfolkpensionfund.org offering three separate services. The main public website is for general viewing and is split into areas for active, deferred and retired scheme members. Employers have their own dedicated section where they can download useful documents and forms. This section allows employers to safely and securely exchange information with us too. We also have an area of the website where scheme members can register to securely view their personal pension details. Once registered, scheme members can view and update their personal details, see their benefit statements and use our online pension calculator. 21 165 Financial Performance The Norfolk Pension Fund prepares an Annual Budget which is reviewed and approved by the Pensions Committee. Details of the expenditure incurred during 2014-15 are provided in the accounts section accompanying this report. There were no notifiable late payments of contributions by scheme employers during 2014-15. All contributions outstanding at 31 March 2015 were collected within statutory timeframes. Movements in assets and liabilities are discussed in the following Investment Policy and Performance section. Investment Policy and Performance Fund Performance Review for the year 2014-15 Introduction The Administering Authority invests the Fund in compliance with the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009. The Fund’s investment advisor is Hymans Robertson LLP. During 2014-15 twelve external investment managers managed the Fund’s assets: • Aviva Investors (property) • Baillie Gifford & Co (UK equities) • Capital International (global equities) • Fidelity (overseas equities) • Goldman Sachs Asset Management (absolute return fixed interest) • HarbourVest (North American, global secondary and Asia Pacific focused private equity) • Henderson (fixed income, absolute return fixed income and multi-asset credit) • Legal & General Investment Management (UK equities - passive) • M&G (buy and hold – corporate bonds and absolute return fixed income) • Sarasin & Partners (global equities) • SL Capital Partners (Standard Life) (European focused private equity) • Wellington (global equities) During the year the Fund changed its global custodian from Northern Trust to HSBC. 22 166 During the last quarter of the financial year the Fund made a broad based reduction to its equity allocation and used the proceeds to fund new absolute return fixed income and multi-asset credit mandates with M&G and Henderson respectively. One direct property asset is managed internally. The majority of the Fund’s cash holdings are swept to AAA rated money market funds managed by HSBC (the global custodian of the assets). Insight (Pareto) and Berenberg Bank are employed to dynamically hedge the main overseas currency exposures arising on the overseas equity holdings. Subsequent Changes There have been no changes to the manager line-up or strategic allocations since the year end. The corporate bond assets managed by M&G will be moved to their absolute return fixed income strategy in the second half of the calendar year and the Fund is changing the Goldman Sachs absolute return fund to target a higher return. 2014-15 Investment Results In absolute terms the Fund’s investment assets have achieved a return of 13% over the 12 months to 31 March 2015, slightly behind the 12 month benchmark return. The return over the more meaningful three and five year time periods is ahead of benchmark after all fees and charges. The majority of the absolute performance occurred in the second half of the financial year, with a particularly strong final quarter. The relative performance of the Fund against its benchmark remains volatile but shows some positive long-term trends. This reflects the pro-active changes that the Pensions Committee have made over the last few years. The reduction in equity exposure in the last quarter of the financial year has reduced overall investment risk in the portfolio. The performance on the individual fund managers was mixed over the last twelve months. Of the Fund’s fixed interest managers M&G added value (exceeded benchmark performance) over the 12 months to 31 March 2014 but the returns achieved by GSAM and Henderson did not, albeit that the absolute return achieved by the Henderson mandate in particular was very strong. The overseas equity mandate managed by Fidelity (the Fund’s largest) performed particularly strongly in the period having enjoyed a very strong run in recent years. The UK equity mandate managed by Baillie Gifford and the global equity mandate managed by Wellington broadly matched their benchmark over the financial year. There was weaker one-year performance from Capital and particularly from Sarasin. The more recent performance of the Capital mandate in particular has bounced back strongly. The activities of both currency managers have added positively to the overall performance of the Fund. 23 167 The Pensions Committee and its advisors remain committed to taking a long-term view of asset manager performance. In practice this means a period of at least five years while monitoring closely the stability of the business, its people and processes. The performance achieved by the Baillie Gifford, Fidelity and the fixed income mandates is strong over longer time periods also. Legal & General continue to track the index successfully in accordance with the requirements of the mandate. Unfortunately the outperformance achieved by these managers was offset by disappointing short and long term performance from Aviva (Property) and private equity as an asset class lagging the strong performance seen in the benchmark public indices. The Aviva performance did reflect the impact of initial investment costs in new positions, cash drag from monies awaiting investment and continued disappointing outcomes from some Continental European investments, as well as the wind down of some fixed term investments. The illiquidity and relative immaturity of the Fund’s private equity investments, together with the impact of currency movements and ongoing draw-downs, mean that the performance recorded for the underlying funds continues to be volatile. However, as global corporate finance activity continued to pick up during the financial year, the Fund saw a strong flow of cash returns from investments made by the private equity managers earlier in the programme. It has also been particularly pleasing to receive early cash returns on some of the secondary investments made by the Fund. The Fund has continued to commit to new private equity funds to maintain the strategic exposure as earlier investments have returned capital. The cash returns enjoyed by the Fund have been particularly strong this year as private equity managers have enjoyed a very strong environment to exit investments made at earlier points in the cycle. The investment performance data for the Fund is shown in the following table: 2014-15 3 Years 5 Years 10 Years 20 Years % Return % per % per % per % per % per annum annum annum annum annum Total Fund Return 13.0 11.3 8.7 7.5 7.9 Fund Benchmark Return 13.5 10.9 8.4 7.8 7.9 Ultimately, strategic asset allocation policies will have a greater impact on Fund performance than the ability of individual investment managers to deliver performance in excess of their benchmarks. 24 168 It is important to consider the risk framework in which the investment results are achieved. If the Fund takes more risk in its asset allocation decisions, it offers the potential for higher returns but it also increases the uncertainty of the outcome, potentially increasing the changes of a negative downside. The Fund is committed to ongoing review of its asset allocation and achieving an appropriate balance between risk and reward. While the Fund is a long term investor of capital through investment cycles, it is also committed to holding investment managers to account for the results they achieve. Triennial Valuation The most recent triennial valuation of the Fund at 31 March 2013 was completed during 2013-14 in accordance with regulatory requirements. A full 2013 Triennial Valuation report, including formal actuarial commentary, is available on our website at www.norfolkpensionfund.org. The next Triennial Valuation will take place in 2016, with results available in the first quarter of 2017. Investment Market Review to 31 March 2015 Review of Global Financial Markets During the past 12 months, major investment markets generally delivered very good returns, with some regional equity indices reaching record highs and fixed interest and property markets also performing very strongly. Taking a longer term perspective, over the last three years attractive returns have been delivered across most of the major asset classes. This positive backdrop was helped by growing investor confidence amid a generally supportive environment of rising corporate profits. Furthermore, signs of a general improvement in the global economic backdrop and continuing loose monetary policy in many developed countries also helped. There were several political flashpoints around the world, including the Russian annexation of Crimea and while these situations have undoubtedly created uncertainty in terms of global security, most had a limited impact on global investment markets. In contrast, a sharp fall in the oil price and the resulting weakness in both oil-exporting countries and oil- related companies were of concern to investors and caused an increase in market volatility towards the end of 2014. 25 169 Oil exporters, such as Russia and Venezuela, have been the worst hit by the falling oil price, as they rely on their oil exports in order to run a balanced budget. However, the falling oil price was beneficial for some countries - particularly significant net oil importers such as Japan, China and India - and consumers more generally. In the all-important US economy, despite occasional setbacks, confidence in the recovery there continued to grow. Unemployment fell from over 6% at the start of the period to around 5.5% at the end of March. This more favourable backdrop prompted the US Federal Reserve to reduce and then halt its long-running bond-buying programme which it had begun in 2009. Good corporate results and the return of considerable amounts of cash to shareholders via share buyback programmes and dividend payments helped the US stock market to reach all-time highs over the last year. Economic data in the UK also suggested an improving environment, with the revised GDP figure for 2014 above forecast. However, the UK stock market has a large weighting in oil- related industries, and poor performance in this sector served to dampen overall index returns. Despite this setback, the last twelve months has seen strong financial results from companies, which have been benefitting from the low interest rate environment, as well as sustained consumer spending levels. Meanwhile, in Europe, deflation continues to plague even the largest Eurozone members. However, support grew for European markets as the European Central Bank (ECB) announced plans to increase its own programme of ‘quantitative easing’ or bond-buying (in contrast to the US situation noted above). The ECB’s decision has served to weaken the euro and bring down bond yields. Whilst the longer term intent for these actions is to stave off further deflation and boost investor confidence. The European stock market finished the period strongly, although weakness in the euro diminished the benefit for sterling investors. In Japan, the government moved to implement the third of prime minister Abe’s ‘three arrows’, aimed at structural reform and creating a backdrop for the fragile economic recovery to gather momentum. However, change was slower than many had hoped for and Abe called a snap election in a bid to secure a stronger mandate to enact his policies. He was returned to power with a substantial majority, giving him the authority to resume his economic plan at his chosen pace. As the world’s third largest economy, Japan’s success or failure in implementing structural reform could prove key in the revitalisation of the global economy. The Bank of Japan surprised markets towards the end of last year when it expanded the already massive stimulus program, injecting a further 80 trillion yen into the economy through a spate of asset-buying activity. This programme has been successful at releasing Japan from its long period of deflation, although two quarters of economic contraction in 26 170 the last year have undermined the ‘growth’ element of Abe’s economic plan. The equity market reacted well however, returning over 26% in sterling terms, leaving it as the top- performing major regional market. The last year has seen Emerging Market countries diverge in terms of economic performance. Asian economies continue to lead the way when considering economic growth, with both domestic consumption and international demand continuing to drive growth in China, India, the Philippines and Indonesia. Meanwhile, behemoths Russia and Brazil have had a poor year, both for GDP growth and stock market returns. Volatility in markets and some of the economic challenges noted earlier prompted periodic moves by investors into areas perceived as less risky and this led to a positive performance from bond markets. UK government bonds have benefitted from ongoing loose monetary policy, with the Bank of England hinting that interest rates are unlikely to rise this year. As such, UK government bonds (All Stocks) gained 14%, outperforming overseas government bonds which rose 8% in local currency terms. UK corporate bonds were also in demand among investors seeking to improve their returns in a low interest rate environment, and recorded a rise of 13%. UK commercial property posted an exceptionally strong 18% rise following a similar return in the previous year, as the improving economic backdrop and increasingly buoyant investor sentiment towards the sector drove yields lower. After the significant rise in values across most asset classes over the past year, and although the investment environment remains generally supportive, there will undoubtedly be periods of further volatility ahead. However, further growth in corporate profits, ongoing support from Central Banks and continued expansion in the global economy can aid further progress in the levels of global financial markets from here. The returns on the main asset classes over the 12 months and three years are illustrated in the charts on the following page. Funding Strategy Statement In accordance with the Local Government Pension Regulations, Norfolk Pension Fund has a Funding Strategy Statement in place. You can find this in the publications section of our website at www.norfolkpensionfund.org. Statement of Investment Principles We publish a Statement of Investment Principles, which can be found in the investment section of our website at www.norfolkpensionfund.org. 27 171 Historic Returns for World Markets 12 Months (%) 3 Years (% pa) Major Classes UK Equities 6.6 10.6 Overseas Equities 14.9 15.6 Gilts (Over 15 Years) 26.9 9.9 Gilts (All Stocks) 13.9 5.3 Index Linked (All) 21.1 8.9 Corporate Bonds 13.3 8.8 Overseas Bonds 7.6 1 Property 17.6 11.2 Cash 0.5 0.5 RPI* 0.9 2.2 WM Loc Auth in Prop* 12.9 11.4 WM Loc Auth ex Prop* 12.7 11.6 -5 0 5 10 15 20 25 30 -5 0 5 10 15 20 25 30 UK Market FTSE 100 6.3 9.4 FTSE 250 7.0 18.1 FTSE SmallCap 1.2 19.7 MSCI UK Value 3.6 9.2 MSCI UK Growth 9.7 9.7 -5 0 5 10 15 20 25 30 -5 0 5 10 15 20 25 30 Overseas Assets 30.9 24.3 Japan 26.2 12.3 19.8 19.1 Europe ex UK 7.8 14.5 13.7 14.1 Pacific Basin ex Japan 12.1 9.4 12.5 15.7 North America 25.3 18.0 11.3 6.8 Emerging Markets 13.2 3.2 -5 5 15 25 -5 5 15 25 * Estimate Local Sterling 28 172 National representation and involvement Our officers work closely with the scheme regulator, the Department for Communities and Local Government (DCLG), in order to contribute to the development of the LGPS. The Norfolk Pension Fund is a member of the National Association of Pension Funds (NAPF), which helps us contribute to the national pensions’ debate. The Fund is also a member of the Local Authority Pension Fund Forum (LAPFF). The LAPFF was established to help local authority pension funds share information and ideas about how we can be responsible owners of the companies in which we invest, and to present a clear, aligned voice on issues of common concern. We are very active in the Local Authority Liaison Group and Nicola Mark, Head of the Norfolk Pension Fund, sits on the Investment Council and the Local Authority Steering Group. Nicola is the elected practitioner representative on the National Scheme Advisory Board and also sits on the Value for Money and Collaboration Sub Committee. The Fund is represented at the Chartered Institute of Public Finance Accountants (CIPFA) Pensions Network and Nicola sits on the CIPFA Pensions Panel. We take a leading role in the Pensions User Group (PUG), which is a network of over 30 LGPS funds that meet regularly to debate and share best practice on LGPS investment matters. Along with other senior officers, the Fund’s Pensions Manager Mark Alexander is a member of the South Eastern Counties Superannuation Officers Group (SECSOG). The group is made up of administering authorities in the region who meet to share information and best practice, ensuring uniform interpretation of the rules governing the scheme. The Fund is an active member of the Heywood Administration CLASS (Computerised Local Authority Superannuation Scheme) and Payroll system user groups. In addition to all of the above, Norfolk Pension Fund officers regularly attend and speak at various seminars and conferences. This is done to continue their professional development, maintain knowledge levels and contribute to the development of the LGPS and the wider pensions industry. 29 173 2014-15 Statement of Accounts 30 174 Statement of Responsibilities The Authority’s Responsibilities The Authority is required: • to make arrangements for the proper administration of its financial affairs and to secure that one of its officers has the responsibility for the administration of those affairs. In this authority, that officer is the Executive Director of Finance; • to manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets; • to approve the statement of accounts. The Executive Director of Finance’s Responsibilities The Executive Director of Finance is responsible for the preparation of the Pension Fund statement of accounts in accordance with proper practices as set out in the Chartered Institute of Public Finance and Accountancy (CIPFA) and Local Authority (Scotland) Accounts Advisory Committee (LASAAC) Code of Practice on Local Authority Accounting in Great Britain (“the Code”). In preparing this statement of accounts, the Executive Director of Finance has: • selected suitable accounting policies and then applied them consistently; • made judgements and estimates that were reasonable and prudent; • complied with the Code. The Executive Director of Finance has also: • kept proper accounting records which were up to date; • taken reasonable steps for the prevention and detection of fraud and other irregularities. Certificate by the Executive Director of Finance I certify the statement of accounts set out on pages XX to XX presents a true and fair view of the financial position of the Norfolk Pension Fund at the accounting date and its income and expenditure for the year ended 31 March 2015. Signed: Simon George Executive Director of Finance and Fund Administrator Date: 8th September 2015 31 175 Independent Auditor’s Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NORFOLK PENSION FUND Opinion on the pension fund financial statements To be included upon completion of audit. 32 176 To be included upon completion of audit. 33 177 Revenue and Fund Account For the Year Ended 31 March 2015 2013-14 2014-15 Notes £000 £000 Dealings with members, employers and others directly involved in the Fund 114,170 Contributions 7 125,054 5,695 Transfers in from other pension funds 8 5,255 119,865 130,309 -118,397 Benefits 9 -121,841 -5,397 Payments to and on account of leavers 10 -87,683 -123,794 -209,524 -3,929 Net additions/withdrawals from dealings with members -79,215 -16,110 Management Expenses 11 -15,484 Returns on investments 55,654 Investment income 12 57,820 -373 Taxes on income 13 -286 Profit and losses on disposal of investments and changes in 151,690 15a 315,888 the market value of investments 206,971 Net return on investments 373,422 Net increase/decrease in the net assets available for 186,932 278,723 benefits during the year 2,483,215 Opening net assets of the scheme 2,670,147 2,670,147 Closing net assets of the scheme 2,948,870 34 178 Net Assets Statement As at 31 March 2015 2013-14 2014-15 Notes £000 £000 2,656,212 Investment assets 15 2,991,654 -6,468 Investment liabilities 15 -61,280 2,649,744 2,930,374 9,082 Long term debtors 20 8,414 9,082 8,414 Current Assets 17,438 Debtors 20 15,739 1,568 Cash in hand 20 1,787 19,006 17,526 Current Liabilities -7,685 Creditors 21 -7,444 -7,685 -7,444 11,321 Net current assets 10,082 Net assets of the Fund 2,670,147 available to fund benefits at 2,948,870 the period end The Fund account and the net assets statement do not take account of liabilities to pay pensions and other benefits after the period end. The ability to meet these future liabilities is considered by the Fund actuary as part of the triennial formal valuation process. Information relating to the valuation of these liabilities is shown in note 19. Signed: Simon George Executive Director of Finance and Fund Administrator Date: 8th September 2015 35 179 Notes to the Accounts 1. Description of Fund The Norfolk Pension Fund ("the Fund") is part of the Local Government Pension Scheme and is administered by Norfolk County Council (“the Administering Authority”). The Administering Authority is the reporting entity for this pension fund. The following description of the Fund is a summary only. For more detail, reference should be made to the Norfolk Pension Fund Annual Report 2014-15 and the underlying statutory powers underpinning the scheme, namely the Public Service Pensions Act 2013 and the Local Government Pension Scheme (LGPS) Regulations. a) General The scheme is governed by the Public Service Pensions Act 2013. The Fund is administered in accordance with the following secondary legislation: • The Local Government Pension Scheme Regulations 2013 (as amended) • The Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 (as amended) • The Local Government Pensions Scheme (Management and Investment of Funds) Regulations 2009 It is a contributory defined benefit pension scheme administered by Norfolk County Council to provide pensions and other benefits for pensionable employees of Norfolk County Council, the district councils in Norfolk and a range of other scheduled and admitted bodies. Teachers, police officers and fire fighters are not included as they come within other national public sector pension schemes. The Council has delegated its pension functions to the Pensions Committee. Responsibility for the administration and financial management of the Fund has been delegated to the Executive Director of Finance. The Pension Committee is responsible for the strategic management of the assets of the Fund and the administration of benefits. The Committee meets quarterly in order to: • Ensure compliance with legislation and best practice • Determine policy for the investment, funding and administration of the Fund • Monitor performance across all aspects of the service • Consider issues arising and make decisions to ensure efficient and effective performance and service delivery • Appoint and monitor advisors • Ensure that arrangements are in place for consultation with stakeholders as necessary 36 180 b) Membership Membership of the LGPS is voluntary and employees are free to choose whether to join the scheme, remain in the scheme or make their own personal arrangements outside the scheme. Organisations participating in the Norfolk Pension Fund include: • Scheduled bodies, which are local authorities and similar bodies whose staff are automatically entitled to be members of the Fund • Admitted bodies, which are other organisations that participate in the Fund under an admission agreement between the Fund and the relevant organisation. Admitted bodies include voluntary, charitable and similar bodies or private contractors undertaking a local authority function following outsourcing to the private sector There are currently 233 employer organisations with active members in the Norfolk Pension Fund including Norfolk County Council as detailed below: 31 March 2015 31 March 2014 Number of Employers with Active Members 233 181 Number of Employees in Scheme Norfolk County Council 14,460 15,074 Other Employers 13,178 12,180 Total 27,638 27,254 Number of Pensioners Norfolk County Council 11,148 10,861 Other Employers 10,099 10,016 Total 21,247 20,877 Deferred Pensioners Norfolk County Council 17,882 16,522 Other Employers 11,243 10,254 Total 29,125 26,776 37 181 The movement in employer numbers is due to the following employers leaving or joining the Fund during the financial year: Employers ceasing to have active Employers joining the active section of the Fund: employees in the Fund: 1 . Norfolk and Suffolk Probation Trust 1. Alive Leisure Trust 2 . Mundesley Parish Council 2. Alive Management Ltd 3 . Holt Town Council 3. All Saints Academy 4 . May Gurney Limited 4. Antingham & Southrepps Community Primary School 5 . Norfolk and Suffolk NHSFT 5. Caister Academy 6. Cherry Tree Academy Marham Junior 7. Cherry Tree Academy Trust Marham 8. Cherry Tree Academy, Marham Infant 9. City of Norwich School 10. Clenchwarton Primary School 11. Duchy of Lancaster Methwold Church of England Primary 12. Eastgate Academy 13. Eaton Primary School 14. Edith Cavell Academy 15. Edwards and Blake (Nicholas Hamond) 16. Filby Primary School 17. Flitcham Church of England Primary Academy 18. Great Snoring Parish Council 19. Great Yarmouth Norse 20. Hethel Innovation Ltd 21. Jane Austen College 22. King Edward VII Academy 23. Kirby Cane and Ellingham Parish Council 24. Lafarge Tarmac 25. Middleton Primary School 26. Norman C of England Primary School 27. Northgate High School 28. Peterhouse Primary School 29. Right for Success Academy Sponsorship Trust 30. Runcton Holme Church of England Primary School 31. Snettisham Primary School 32. St Martin at Shouldham Church of England Primary Academy 33. St Michael's Church of England Academy (King's Lynn) 34. St Peter & St Paul Carbroke Church of England Primary Academy 35. Stalham Academy 36. Stalham High School 37. Swaffham Church of England Junior School 38 182 Employers ceasing to have active Employers joining the active section of the Fund: employees in the Fund: 38. The Short Stay School for Norfolk 39. Tilney All Saints Voluntary Controlled Primary School 40. Tuckswood Academy and Nursery 41. University Technical College Norfolk 42. Village Green Children's Centre 43. Wayland Junior Academy Watton 44. Weeting VC Primary School 45. Wensum Junior School 46. West Lynn Primary 47. Whitefriars Church of England Primary Academy 48. Wormegay Church of England Primary School 49. Cobholm Primary Academy 50. Gillingham St Michael's Church of England Primary 51. Mundford Church of England Primary Academy 52. Nar & St Clement's Surestart Children's Centre 53. Norfolk Police and Crime Commissioner 54. Stradbroke Primary Academy 55. The Howard Junior Academy 56. Thomas Bullock Church of England Primary Academy 57. Village Green Nursery A full list of participating employers is shown is Appendix I. 39 183 c) Funding Benefits are funded by employee and employer contributions and investment earnings. For the financial year ending 31 March 2015, employee contributions are made by active members of the Fund in accordance with the LGPS Regulations 2013 and range from 5.5% to 12.5% of actual pensionable pay. Banding depends on a member’s actual annual pay rate. The table below shows the bands for 2014-15 and 2015-16. Actual Pensionable Contribution Actual Pensionable Contribution Pay 2014-15 rate per year Pay 2015-16 rate per year Up to £13,500 5.5% Up to £13,600 5.5% £13,501 to £21,000 5.8% £13,601 to £21,200 5.8% £21,001 to £34,000 6.5% £21,201 to £34,400 6.5% £34,001 to £43,000 6.8% £34,401 to £43,500 6.8% £43,001 to £60,000 8.5% £43,501 to £60,700 8.5% £60,001 to £85,000 9.9% £60,701 to £86,000 9.9% £85,001 to £100,000 10.5% £86,001 to £101,200 10.5% £100,001 to £150,000 11.4% £101,201 to £151,800 11.4% £150,001 or more 12.5% More than £151,800 12.5% Employee contribution rates are prescribed by the governing regulations, and cannot be varied locally. Employers' contributions are set based on triennial actuarial funding valuations. The last valuation at March 2013 set the rates payable by employers for the period 1st April 2014 to 31st March 2017. Excluding lump sum deficit recovery payments these rates range from 0% to 28.6% of actual pensionable pay. 40 184 d) Benefits Pension benefits under the LGPS (until March 2014) were based on final pensionable pay and length of pensionable service. From 1st April 2014 the scheme became a career average scheme, whereby members accrue benefits based on their pensionable pay in that year at an accrual rate of 1/49th. Membership Membership April Membership from before April 2008 2008 to March 2014 April 2014 Each year worked is Each year worked is 1/49 of pensionable worth 1/80 x final worth 1/60 pay in each year Pension pensionable salary x final pensionable salary Automatic lump No automatic lump No automatic lump Lump Sum sum of 3 x salary sum sum Part of the annual Part of the annual A lump sum of £12 pension can be pension can be is paid for each £1 exchanged for a exchanged for a of pension given up Additional one-off tax-free one-off tax-free Lump sum cash payment. A cash payment. A lump sum of £12 is lump sum of £12 is paid for each £1 of paid for each £1 of pension given up pension given up Benefits are index-linked in order to keep pace with inflation. In June 2010, the Government announced that the method of indexation would change from the retail prices index to the consumer prices index. This change took effect from 1 April 2011. The 2015 pensions increase is 1.2% (2.7% in 2014). There are a range of other benefits provided under the scheme including early retirement, disability pensions and death benefits. For details please contact the Fund. 2. Basis of Preparation The Statement of Accounts summarises the Fund's transactions for the 2014-15 financial year and its position at year-end as at 31 March 2015. The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2014-15 which is based upon International Financial Reporting Standards (IFRS) as amended for the UK public sector. 41 185 The accounts summarise the transactions of the Fund and report on the net assets available to pay pension benefits. The accounts do not take account of obligations to pay pensions and benefits which fall due after the end of the financial year. The actuarial present value of promised retirement benefits, are disclosed in accordance with the requirements of International Accounting Standard (IAS) 26. Full details of this approach are disclosed at note 19 of these accounts. The accounts have been prepared on the normal accruals basis of accounting other than in respect of transfer values. Generally transfer values are prepared on a cash basis. Where a transaction in respect of a transfer out has already been processed through the pensions administration system but not through the accounts payable system a creditor will be shown. 3. Summary of Significant Accounting Policies Fund Account - Revenue Recognition a) Contribution income Employees’ normal and additional contributions are accounted for when deducted from pay. Employer contributions are accounted for on the same basis as they are expressed in the Rates & Adjustments certificate to the relevant formal valuation. Employees and employers normal contributions are accounted for on an accruals basis. Employer deficit funding contributions are accounted for on the due dates on which they are payable under the schedule of contributions set by the scheme actuary or on receipt if earlier than the due date. Employers' augmentation contributions and pensions strain contributions are accounted for in the period in which the liability arises. Any amount due in year but unpaid will be classed as a current financial asset. Amounts not due until future years are classed as long-term financial assets. b) Transfers to and from other schemes Transfer values represent the amounts received and paid during the year for members who have either joined or left the Fund during the financial year and are calculated in accordance with the Local Government Pension Scheme Regulations (see notes 8 and 10). Individual transfers in and out are accounted for on a cash basis when received or paid, which is normally when the member liability is accepted or discharged. 42 186 Transfers in from members wishing to use proceeds of their additional voluntary contributions (see below) to purchase scheme benefits are accounted for on a receipts basis and are included in Transfers In (see note 8). Bulk (group) transfers are accounted for on an accruals basis in accordance with the terms of the transfer agreement. c) Investment income i) Interest income Interest income is recognised in the Fund account as it accrues, using the effective interest rate of the financial instrument as at the date of acquisition or origination. ii) Dividend income Dividend income is recognised on the date the shares are quoted ex-dividend. Any amount not received by the end of the reporting period is disclosed in the net assets statement as a current financial asset. iii) Distributions from pooled funds Income distributions from pooled funds are recognised at the date of issue. Any amount not received by the end of the reporting period is disclosed in the net assets statement as a current financial asset. iv) Property-related income Property-related income consists of rental income and income from pooled property investment vehicles. Income from pooled property investment vehicles is recognised as in iii) above. v) Movement in the net market value of investments Changes in the net market value of investments (including investment properties) are recognised as income and comprise all realised and unrealised profits/losses during the year. Fund Account - Expense Items d) Benefits payable Pensions and lump-sum benefits payable include all amounts known to be due as at the end of the financial year. Any amounts due but unpaid are disclosed in the net assets statement as current liabilities. e) Taxation The Fund is a registered public service scheme under section 1(1) of Schedule 36 of the Finance Act 2004 and as such is exempt from UK income tax on interest received and from capital gains tax on the proceeds of investments sold. Income from overseas investments suffers withholding tax in the country of origin, unless exemption is permitted. Irrecoverable tax is accounted for as a Fund expense as it arises. 43 187 f) Management expenses i) Administrative expenses All administrative expenses are accounted for on an accruals basis. All costs incurred in respect of the administration of the Fund by the Administering Authority are charged to the Fund. These include staff, accommodation and IT costs. ii) Oversight and Governance Costs All oversight and governance expenses are accounted for on an accruals basis. All staff costs associated with governance and oversight are charged direct to the fund. Associated management and other overheads are apportioned to this activity and charged as expenses to the fund. iii) Investment Management Expenses All investment management expenses are accounted for on an accruals basis. Fund Manager fees are broadly based on the market value of the assets under management and therefore increase or reduce as the value of these investments change. Fees payable to external investment managers and the custodian are in accordance with the contractual agreements with the Fund. In addition the Fund has agreements with the following managers that an element of their fee is performance related: Manager Asset Class Henderson Global Investors Fixed Income Fidelity Overseas Equities Baillie Gifford & Co UK Equities Capital International Global Equities 2014-15 2013-14 £000 £000 Performance-related fees 1,747 2,634 Where an investment managers' fee invoice has not been received by the balance sheet date, an estimate based upon the market value of their mandate as at the end of the year plus any appropriate performance allowance is used for inclusion in the Fund account. 44 188 2014-15 2013-14 £000 £000 Value of fees based on 3,568 3,451 estimates The cost of obtaining investment advice from external consultants, investment performance measurement, governance and voting and custody is included in investment management charges. Net Assets Statement g) Financial assets Financial assets are included in the net assets statement on a fair value basis as at the reporting date. A financial asset is recognised in the net assets statement on the date the Fund becomes party to the contractual acquisition of the asset. From this date any gains or losses arising from changes in the fair value of asset are recognised by the Fund in the Fund Account. The values of investments as shown in the net assets statement have been determined as follows: i) Market-quoted investments The value of an investment for which there is a readily available market price is determined by the bid market price ruling on the final day of the accounting period. ii) Fixed interest securities Fixed interest securities are recorded at net market value based on their current yields. iii) Unquoted investments The fair value of investments for which market quotations are not readily available is determined as follows: • Valuations of delisted securities are based on the last sale price prior to delisting, or where subject to liquidation, the amount the council expects to receive on wind-up, less estimated realisation costs. • Securities subject to takeover offer - the value of the consideration offered under the offer, less estimated realisation costs. • Directly held investments includes investments in limited partnerships, shares in unlisted companies, trusts and bonds. Other unquoted securities typically include pooled investments in property, infrastructure, debt securities and private equity. The valuation of these pools or directly held securities is undertaken by the investment manager or responsible entity and 45 189 advised as a unit or security price. The valuation standards followed in these valuations adhere to industry guidelines or to standards set by the constituent documents of the pool or the management agreement. • Investments in unquoted property and infrastructure pooled funds are valued at the net asset value or a single price advised by the fund manager. • Investments in private equity funds and unquoted listed partnerships are valued based on the Fund's share of the net assets in the private equity fund or limited partnership using the latest financial statements published by the respective fund managers in accordance with the appropriate industry guidelines. iv) Limited partnerships Fair value based on the net asset value ascertained from periodic valuations provided by those controlling the partnership. v) Pooled investment vehicles Pooled investment vehicles are valued at closing bid prices if both bid and offer prices are published; or if single priced, at the closing single price. In the case of pooled investment vehicles that are accumulation funds, change in market value also includes income which is reinvested in the Fund, net of applicable withholding tax. vi) Freehold and leasehold properties The direct property holding is unchanged and was last valued at open market value on 31 March 2013 by NPS Property Consultants Ltd using a MRICS qualified Valuer in accordance with the Royal Institute of Chartered Surveyors' Valuation Standards 2012. The direct property holding is valued every 3 years in line with the triennial valuation of the Fund. The direct property holding will next be re- valued on 31 March 2016. h) Foreign currency transactions Dividends, interest and purchases and sales of investments in foreign currencies have been accounted for at the spot market rates at the date of transaction. End-of- year spot market exchange rates are used to value cash balances held in foreign currency bank accounts, market values of overseas investments and purchases and sales outstanding at the end of the reporting period. i) Derivatives The Fund uses derivative financial instruments to manage its exposure to specific risks arising from its investment activities. The Fund does not hold derivatives for speculative purposes. Derivative contract assets are fair valued at bid prices and liabilities are fair valued at offer prices. Changes in the fair value of derivative contracts are included in change in market value. 46 190 The value of futures contracts is determined using exchange prices at the reporting date. Amounts due from or owed to the broker are the amounts outstanding in respect of the initial margin and variation margin. The future value of forward currency contracts is based on market forward exchange rates at the year-end date and determined as the gain or loss that would arise if the outstanding contract were matched at the year-end with an equal and opposite contract. j) Cash and cash equivalents Cash comprises cash in hand and demand deposits as arising. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to minimal risk of changes in value. Cash and cash equivalents held with the global custodian (HSBC) are classified as cash deposits within other investment balances. Operational cash balances managed by the Administering Authority’s treasury management operations are disclosed as cash in hand within current assets. k) Financial liabilities The Fund recognises financial liabilities at fair value as at the reporting date. A financial liability is recognised in the net assets statement on the date the Fund becomes party to the liability. From this date any gains or losses arising from changes in the fair value of the liability are recognised by the Fund. l) Actuarial present value of promised retirement benefits The actuarial present value of promised retirement benefits is assessed on a triennial basis by the scheme actuary in accordance with the requirements of IAS 19 and relevant actuarial standards. As permitted under IAS 26, the Fund has opted to disclose the actuarial present value of promised retirement benefits by way of a note to the net assets statement (note 19). m) Additional voluntary contributions (AVCs) The Fund has three appointed providers of AVCs; Prudential, Clerical Medical and Equitable Life (a legacy arrangement that is not open to new contributors). AVCs are held by the providers and do not form part of the Fund’s assets. These amounts are not included in the main Fund accounts in accordance with Regulation 4 (2) (b) of the Pension Scheme (Management and Investment of Funds) Regulations 2009 but are disclosed as a note only (note 22). Members participating in these arrangements receive an annual statement at 31 March each year showing the amount held in their account and the movements in the year. Contributions are deducted from member salaries by their employer and 47 191 paid directly to the AVC providers. AVCs may be used to fund additional retirement benefits or to purchase additional life cover at a level higher than that provided by the main scheme. Upon retirement the value of an individual AVC account may be used in some or all of the following ways depending on the circumstances of the retiring member: 1. Buy an annuity from a third party provider 2. Buy an annuity within the LGPS 3. Take some of or the entire accumulated AVC fund as cash, if within limits set down in the scheme regulations and by HMRC 4. Under certain specific circumstances buy extra membership within the LGPS (this is a legacy right associated with some members only) Accounting Standards issued but not yet adopted n) The 2014-15 and 2015-16 Code of Practice on Local Authority Accounting lists a number of accounting standards that have been issued but not yet adopted. Of the standards listed, IFRS 13 Fair Value Measurement is the most relevant to the Fund. Having considered all the standards the Fund has determined there is no material impact on the accounts and no additional disclosure is required. 4. Critical Judgements in Applying Accounting Policies Unquoted private equity investments It is important to recognise the subjective nature of determining the fair value of private equity investments. They are inherently based on forward-looking estimates and judgements involving many factors. The values of the investment in private equity are based on valuations provided by the general partners to the private equity funds in which Norfolk Pension Fund has invested. These valuations are prepared in accordance with the International Private Equity and Venture Capital Valuation guidelines, which follow the valuation principles of IFRS and US GAAP. Cash flow adjustments are used to roll forward the valuations to 31 March as appropriate. Funds managed by HarbourVest are subject to full valuations at 31 March each year. Standard Life funds are valued at 31 December and rolled forward for cash flows to 31 March. 2014-15 2013-14 £000 £000 Value of unquoted private 193,353 188,146 equity 48 192 Pension fund liability The pension fund liability is calculated every three years by the appointed actuary. The assumptions underpinning the valuations are agreed with the actuary and are summarised in note 18. In accordance with IAS26 the Fund is also required to disclose on an annual basis the actuarial present value of promised retirement benefits (see note 19). Actuarial methodology used in triennial valuations is different from that used in IAS26, therefore they will produce different liability values at a common valuation date. The liability estimates in notes 18 and 19 are subject to significant variances based on changes to the underlying assumptions and actual future experience related to the development of pension liabilities. 5. Assumptions Made About the Future and Other Major Sources of Estimation Uncertainty The preparation of financial statements requires the Administering Authority to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for the revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The key judgements and uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are: Effect if actual results differ from Item Uncertainties assumptions Actuarial present Estimation of the net The effects on the net pension liability value of promised liability to pay pensions of changes in individual assumptions retirement benefits depends on a number of can be measured. For instance, a 0.5% (measured under complex judgements increase in the real discount rate IAS26) relating to the discount rate assumption would result in a decrease used, the rate at which in the pension liability of £416 million. salaries are projected to A 0.25% increase in the assumed increase, changes in earnings inflation would increase the retirement ages, mortality value of liabilities by approximately rates and expected returns £71 million, a 0.5% increase in the on pension fund assets. A pension increase rate would increase firm of consulting actuaries the liability by approximately £311 is engaged to provide the million and a one-year increase in Fund with expert advice assumed life expectancy would about the assumptions to be increase the liability by approximately applied. £134 million. 49 193 Effect if actual results differ from Item Uncertainties assumptions Private Equity Private equity investments The total private equity investments in are valued at fair value in the financial statements are £193.4 accordance with million. There is a risk that this appropriate standards and investment may be under or guidance. These overstated in the accounts. investments are not publicly listed and as such there is a degree of estimation involved in the valuation. 6. Events after the Balance Sheet Date There have been no events since 31 March 2015, and up to the date when these accounts were authorised, which require any adjustments to these accounts. 7. Contributions Receivable By Category 2013-14 2014-15 £000 £000 84,045 Employers – normal 94,462 334 Employers – special 1,516 388 Employers – augmentation 0 2,682 Employers – strain 1,823 25,842 Members – normal 26,455 Members – purchase of additional scheme 879 798 benefits 114,170 125,054 Employer Normal contributions include deficit recovery Contributions as shown below. Where applicable the actuarial certification of the employers’ contribution rate includes an element in respect of deficit funding estimated to recover the deficit on that employers section of the Fund over an agreed period. 50 194 2013-14 2014-15 £000 £000 Deficit recovery contribution included in 43,766 51,669 employers normal contributions 43,766 51,669 Special contributions represent amounts paid by employers in excess of the minimum contribution levels required by the Actuary (in the Rates and Adjustment Certificate to the applicable triennial valuation) and to termination settlements agreed by scheduled bodies ceasing participation in the Fund. They do not relate to augmentation and strain arising on non ill-health early retirements. Pension benefits are funded to be paid from normal retirement age. If any employee is allowed to take their pension benefits early this places an additional cost (strain) on the Pension Fund. Employers are required to reimburse the Pension Fund in respect of the “strain costs” arising from an employee taking early retirement. In some cases the cost can be paid in full at the date of retirement or by instalments over 3 years in which case interest is added. By Authority 2013-14 2014-15 £000 £000 50,490 Administering authority 51,465 41,882 Other scheduled bodies 45,197 5,529 Community admission bodies 8,561 1,614 Transferee admission bodies 2,892 14,655 Resolution bodies 16,939 114,170 125,054 51 195 The LGPS provides scope for employers to award additional years of membership on retirement. If an employer opts to award augmented membership, the employer is required to purchase the additional period from the Pension Fund. Again in some cases the cost can be paid in one instalment or over 3 years with an appropriate interest adjustment. The outstanding instalments due after 31 March were: 2013-14 2014-15 £000 £000 Strain instalments due after the balance 22 8 sheet date 22 8 The debtors figure for augmentation/strain due in note 20 comprises the total of these balances plus the outstanding invoiced balances in respect of augmentation/strain due from Fund employers at 31 March 2015. 8. Transfers In From Other Pension Funds 2013-14 2014-15 £000 £000 5,695 Individual transfers 5,255 5,695 5,255 The individual transfers figure represents the payments received by the Fund in relation to individual members’ transfers of benefit into the Fund from other pension arrangements. With effect from 1 April 2005 the Magistrates Courts Service (a body participating in the Norfolk Pension Fund) became part of the civil service. Terms have been agreed for the transfer of liabilities from all Local Government Pension Schemes (LGPS) to the Principal Civil Service Scheme (PCSPS). Each affected LGPS Fund’s actuary has determined the value of the pensioner and deferred liabilities remaining with the LGPS and calculated the requirement for sufficient retained assets to match these liabilities. The Actuary has determined that there are insufficient assets to cover the remaining liabilities so a balancing payment is required to the Fund by the Civil Service (Her Majesty’s Courts Service), spread over ten annual instalments. 52 196 2013-14 2014-15 £000 £000 8,823 HMCS total present value 7,698 8,823 7,698 The discounted value of the outstanding cash flows is included in debtor balances at the year-end. The total present value of these amounts is calculated as £7.7 million. As the payment is being made direct by the sponsoring government department rather than from the PCSPS (a registered pension scheme), the income has been classified as employer special contributions. 9. Benefits Payable By Category 2013-14 2014-15 £000 £000 93,207 Pensions 96,794 Commutation and lump sum retirement 23,089 24,040 benefits 2,101 Lump sum death benefits 1,007 118,397 121,841 By Authority 2013-14 2014-15 £000 £000 55,539 Administering authority 58,724 45,516 Other scheduled bodies 44,790 4,569 Community admission bodies 5,332 2,836 Transferee admission bodies 2,928 9,937 Resolution bodies 10,067 118,397 121,841 53 197 10. Payments To and On Account of Leavers 2013-14 2014-15 £000 £000 0 Group Transfers 82,097 17 Refunds to members leaving service 74 5,375 Individual transfers 5,512 Payment made under Regulation 74, 75 and 15(3) of the 5 Local Government Pension Scheme (Administration) 0 Regulations 2008 5,397 87,683 The 2014-15 Group Transfers figure represents the regulatory transfer of all active, deferred and pensioner members to the Greater Manchester Pension Fund. 11. Management Expenses Pension fund management expenses for 2014-15 are accounted for in accordance with the CIPFA guidance Accounting for Local Government Pension Scheme Management Costs. Note 11 Management Expenses now includes fund administration costs, oversight and governance costs (previously included with the fund administration cost figure) and investment management expenses (including Transaction Costs previously included in investment Purchases and Sales). The comparator figures for 2013-14 have been restated to reflect the implementation of the CIPFA guidance. Consequently management expenses reported in the Revenue and Fund Account for 2013-14 have been increased by £0.765m to £16.110m and Profit and Loss on disposal of investments and changes in the market value of investments has similarly been increased by £0.765m to £151.690m to reflect the fees which had been deducted at source. 2013-14 2014-15 £000 £000 1,598 Administrative costs 1,754 14,013 Investment management expenses 13,208 499 Oversight and governance costs 522 16,110 15,484 54 198 The Local Government Pension Scheme Regulations enables administration expenses (including Oversight and Governance) to be charged to the Fund. Investment management expenses are analysed further in note 14. 12. Investment Income 2013-14 2014-15 £000 £000 7,448 Income from fixed interest securities 3,780 18,969 Equity dividends 20,011 11,231 Pooled Property investments 13,010 Pooled fund income - unit trusts and 9,829 10,207 other managed funds 2,695 Private equity income 4,878 5,163 Pooled funds rebate 5,651 130 Stock lending 142 137 Interest on cash deposits 61 36 Property (note 12a) 36 16 Other 44 55,654 57,820 12a. Property Income 2013-14 2014-15 £000 £000 36 Rental income 36 -18 Direct operating expenses 0 18 Net income 36 55 199 13. Taxes on Income 2013-14 2014-15 £000 £000 325 Withholding tax - equities 268 48 Withholding tax – pooled investments 18 373 286 14. Investment Expenses 2013-14 2014-15 £000 £000 5,769 Management fees – invoiced ad valorem 6,348 2,635 Management fees – invoiced performance 1,747 1,481 Management expenses on unit trusts 1,215 3,188 Private Equity – fund of fund fees 3,111 18 Direct Property 0 120 Custody fees 120 37 Derivative commission fees 50 765 Transaction Costs 617 14,013 13,208 56 200 15. Investments Market Market Value 31 Value 31 March March 2014 2015 £000 £000 Investment assets 122,677 Fixed Interest Securities 123,987 793,786 Equities 821,867 1,190,572 Pooled Investments 1,306,655 308,550 Pooled property investments 339,470 188,146 Private equity Partnerships 193,353 454 Property 454 6,770 Derivatives - forward currency 5,630 40,844 Cash deposits 58,766 4,413 Amounts receivable for sales 54,472 0 Prepayment of Investment Balances 87,000 2,656,212 Total investment assets 2,991,654 Investment liabilities -290 Derivatives – futures -653 -1,756 Derivatives - forward currency -3,060 -4,422 Amounts payable for purchases -57,567 -6,468 Total investment liabilities -61,280 2,649,744 Net investment assets 2,930,374 57 201 15a. Reconciliation of Movements in Investments and Derivatives 2014-15 Purchases Sales Change in Market during the during the market Market value year and year and value value 31 March derivative derivative during the 31 March 2014 payments receipts year 2015 £000 £000 £000 £000 £000 Fixed interest securities 122,677 14,486 -14,512 1,336 123,987 Equities 793,786 355,680 -427,425 99,826 821,867 Pooled investments 1,190,572 103,674 -137,984 150,393 1,306,655 Pooled property investments 308,550 39,612 -46,976 38,284 339,470 Private equity 188,146 28,107 -38,568 15,668 193,353 Property 454 0 0 0 454 2,604,185 541,559 -665,465 305,507 2,785,786 Derivative contracts: - Futures -290 5,876 0 -6,239 -653 - Forward currency contracts 5,014 156,717 -159,505 344 2,570 4,724 162,593 -159,505 -5,895 1,917 Other investment balances: - Cash deposits 40,844 16,276 58,766 - Amount receivable for sales 4,413 54,472 of investments - Prepayment of investment 0 87,000 Balances - Amount payable for purchases of -4,422 -57,567 investments Net investment assets 2,649,744 315,888 2,930,374 58 202 15a. Reconciliation of Movements in Investments and Derivatives 2013-14 Purchases Sales Change in Market during the during the market Market value year and year and value value 31 March derivative derivative during the 31 March 2013 payments receipts year 2014 £000 £000 £000 £000 £000 Fixed interest securities 119,061 17,631 -9,196 -4,819 122,677 Equities 744,493 280,485 -276,977 45,785 793,786 Pooled investments 1,109,477 107,178 -76,007 49,924 1,190,572 Pooled property investments 276,139 39,790 -18,469 11,090 308,550 Private equity 181,608 28,502 -28,993 7,029 188,146 Property 454 0 0 0 454 2,431,232 473,586 -409,642 109,009 2,604,185 Derivative contracts: - Futures -1,640 2,168 -3,225 2,407 -290 - Forward currency contracts -5,628 95,872 -122,579 37,349 5,014 -7,268 98,040 -125,804 39,756 4,724 Other investment balances: - Cash deposits 40,376 2,925 40,844 - Amount receivable for sales 2,364 4,413 of investments - Amount payable for purchases of -8,675 -4,422 investments Net investment assets 2,458,029 151,690 2,649,744 59 203 Transaction costs are included in the cost of purchases and in sale proceeds. These include costs charged directly to the Fund, such as fees, commissions, stamp duty and other fees. In addition to these costs, indirect costs are incurred through the bid-offer spread on investments within pooled investments. Transaction costs incurred during 2014-15 £617,000 Transaction costs incurred during 2013-14 £765,000 60 204 15b. Analysis of Investments (excluding derivative contracts and cash) 31 March 31 March 2014 2015 £000 £000 Fixed Interest Securities UK 73,710 Corporate quoted 74,273 Overseas 442 Public sector quoted 0 48,525 Corporate quoted 49,714 122,677 123,987 Equities UK 271,726 Quoted 266,803 Overseas 522,060 Quoted 555,064 793,786 821,867 Pooled Funds - additional analysis 850,132 Unit trusts 961,374 243,409 Unitised insurance policies 235,131 97,031 Other managed funds 110,150 1,190,572 1,306,655 308,550 Pooled property investments 339,470 188,146 Private equity 193,353 454 Direct Property 454 497,150 533,277 2,604,185 2,785,786 61 205 15b. Analysis of Derivatives Objectives and policies for holding derivatives The holdings in derivatives are to hedge exposures to reduce risk in the Fund. The use of derivatives is managed in line with the investment management agreements between the Fund and the investment managers holding mandates that permit the use of these instruments. a) Futures Futures contracts are exchange traded contracts to buy or sell a standard quantity of a specific asset at a pre-determined future date. The economic exposure represents the notional value of stock purchased under futures contracts and is therefore subject to market movements. The Fund has authorised the use of futures by Henderson and M&G to assist in meeting the investment objectives that they have been set. Specifically in the M&G portfolio futures are used to hedge the risk of a future rise in gilt yields and its impact on the portfolio. Henderson did not hold any futures contracts in its portfolio at 31 March 2015 (2014 nil). b) Forward foreign currency In order to maintain appropriate diversification and to take advantage of overseas investment opportunities, a significant proportion of the Fund's quoted equity portfolio is in overseas stock markets. To reduce the volatility associated with fluctuating currency rates, the Fund has a currency hedging programme in place. The Fund also requires Aviva to hedge 100% of the currency exposure arising from its discretionary (off-benchmark) investments in global (ex-UK) property funds. This hedging activity covers US Dollar, Euro, Yen and Australian Dollar exposures. Similarly M&G are required to hedge 100% of the non-Sterling currency exposure (Euro) within its fixed interest portfolio. In addition to these mandate positions short term contracts may also arise in portfolios investing in non-Sterling denominated assets as a consequence of the need to settle transactions in foreign currencies. These tend to be shorter term contracts than those undertaken for other purposes but settlement may span the balance sheet date. 62 206 Futures Outstanding exchange traded futures contracts are as follows: Market Market Value 31 Value 31 Type Expires Economic March Economic March Exposure 2014 Exposure 2015 £000 £000 £000 £000 Assets UK fixed interest Less than 1 year -9,838 10 0 0 Total assets 10 0 Liabilities UK fixed interest Less than 1 year -81,028 -300 -91,185 -653 Total liabilities -300 -653 Net futures -290 -653 Included within cash balances is £1,782,000 (2014 £1,595,000) in respect of initial and variation margins arising on open futures contacts at the year end. 63 207 Open forward currency contracts Asset Liability Currency Local value Currency Local value Settlement value value bought 000 sold 000 £000 £000 Up to one month £ 8,547 AUD -15,846 402 0 Up to one month £ 268,626 EUR -364,399 4,876 0 Up to one month £ 112,959 JPY -20,124,257 0 -136 Up to one month £ 317,270 $ -472,988 0 -1,394 Up to one month EUR 62,590 £ -46,582 0 -1,280 Up to one month JPY 8,193,205 £ -45,702 341 0 Up to one month $ 357,873 £ -241,358 0 -250 Between three and six months £ 2,707 EUR -3,720 11 0 Open forward currency contacts at 31 March 2015 5,630 -3,060 Net forward currency contracts at 31 March 2015 2,570 Prior year comparative Open forward currency contacts at 31 March 2014 6,770 -1,756 Net forward currency contracts at 31 March 2014 5,014 Contracts with a common underlying currency profile and similar maturity profile have been amalgamated for the purpose of disclosure. A key to the currencies referred to in the table is provided below: Symbol / Acronym Currency £ British pound (Sterling) $ United States dollar AUD Australian dollar EUR Euro JPY Japanese yen 64 208 15b. Investments Analysed by Fund Manager Market Value 31 Market Value 31 March 2014 March 2015 £000 % £000 % 473,082 17.85 Fidelity 551,627 18.81 318,194 12.01 Aviva Investors 359,862 12.28 275,899 10.41 Henderson Global Investors 311,410 10.63 275,520 10.40 Capital International Ltd 284,040 9.69 241,021 9.10 Baillie Gifford & Co 237,622 8.11 243,409 9.19 Legal & General Investment Management 235,131 8.02 126,385 4.77 M&G 215,246 7.35 173,216 6.53 Wellington International 182,590 6.23 173,273 6.54 Sarasin & Partners 180,256 6.15 151,592 5.72 Goldman Sachs Asset Management 166,080 5.67 94,720 3.57 HarbourVest Partners 114,751 3.92 93,426 3.53 SL Capital Partners 78,234 2.67 5,044 0.19 Global Custodian* 12,493 0.43 3,238 0.12 Insight Investment (Pareto)* 2,551 0.09 1,725 0.07 Berenberg Bank * -1,519 -0.05 2,649,744 100.00 2,930,374 100.00 All the above companies are registered in the United Kingdom. * The assets held by the Global Custodian(s) represent cash held in money market funds primarily to meet the cash flow requirements of the Fund’s private equity programme and monies held for property investment. Currency hedging contracts in respect of the Fund’s overseas equity holdings are reported in the Insight Investment (Pareto) and Berenberg Bank holdings. The market value of the contracts could represent a payable or receivable. 65 209 15b. Investments Representing More Than 5% of the Net Assets of the Scheme Market Value Percentage Market Security 31 March Percentage of of total Value 31 2014 total fund fund March 2015 £000 % £000 % Legal & General UK Equity 243,409 9.1 234,360 7.9 Index Fund Fidelity Institutional 162,719 6.1 167,217 5.7 Exempt America Fund Goldman Sachs Strategic 151,592 5.7 166,080 5.6 Absolute Return (STAR) Bond Fund Fidelity Institutional 140,908 5.3 150,174 5.1 Europe Fund During the year no individual investment (a single security) exceeded 5% of the total value of the net assets. Four pooled holdings do represent over 5% of the total value of the net assets of the scheme. Each holding is a pooled investment vehicle and comprises the following: • At 31 March 2015 the Legal and General UK Equity Index Fund held 642 (2014 622) stocks compared with the 642 (2014 622) stocks in the equity index that it tracks (FTSE all-share). • The underlying holdings of the Fidelity Institutional Exempt America Fund comprised 160 stocks at 31 March 2015 (2014 181). • The Goldman Sachs STAR Fund held 1,007 (2014 1,436) individual positions at 31 March 2015. • The Fidelity Institutional Europe Fund comprised 64 holdings at 31 March 2015 (2014 61). The Legal &General investment is a unit linked contract of long term insurance (“the policy”) issued by Legal & General Assurance (Pensions Management) Limited (“PMC”), to which units are allocated in the range of pooled investment funds operated as portfolios of assets (“PF Sections”). The policy falls within Class II of Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and is not a “with profits” contract. The value of the units in a PF Section are directly linked to the assets legally and beneficially owned by PMC and held in that PF section and units may be surrendered and their value realised in accordance with the conditions applying to the Policy (including at PMC’s discretion, by a transfer of assets in specie). The value is incorporated into the net asset statement within other managed funds. The underlying assets are predominantly quoted UK equities but may also include uninvested cash and futures. 66 210 Within the Reconciliation of the Movements in Investments, the following investments represented more than 5% of the asset class or type at 31 March 2015: Market Value Percentage Holding/Investment Type 31 March 2015 of asset £000 class % Pooled investments Legal & General UK Equity Index Fund 234,360 17.94% Fidelity Institutional Exempt America Fund 167,217 12.80% Goldman Sachs Strategic Absolute Return Bond Fund 166,080 12.71% Fidelity Institutional Europe Fund 150,174 11.49% Henderson Long Dated Credit Fund 141,041 10.79% Fidelity Institutional Japan Fund 85,182 6.52% Pooled property investments Industrial Property Investment Fund 29,837 8.79% Aviva Investors Pensions Property Fund 29,271 8.62% Standard Life Pooled Property Fund 27,911 8.22% Blackrock UK Property Fund 23,637 6.96% Threadneedle Property Unit Trust 23,576 6.95% Standard Life UK Retail Park Trust 20,098 5.92% Lothbury Property Trust 18,721 5.51% Ashtenne Industrial Property Fund 18,353 5.41% Private equity Harbourvest VIII Cayman Buyout Fund 42,641 22.05% Standard Life European Strategic 30,494 15.77% Harbourvest VIII Cayman Venture Fund 27,070 14.00% Standard Life European Strategic 24,517 12.68% Standard Life European Strategic 22,280 11.52% Harbourvest IX Cayman Buyout Fund 10,289 5.32% Harbourvest VII Cayman Buyout Fund 10,271 5.31% Direct Property Hamlin Way, King's Lynn 454 100.00% 67 211 Market Value Percentage Holding/Investment Type 31 March 2015 of asset £000 class % Derivatives - Futures July 2015 Long GILT Future -347 53.22% July 2015 Medium GILT Future -289 44.31% 15c. Stock Lending 31 March 31 March 2015 2014 £000 £000 Value of quoted equities on loan 6,280 67,793 Fair value of collateral held by Custodian 6,636 71,784 Collateral relative to stock on loan 106% 106% (percentage coverage) Stock Lending is a programme of lending eligible securities, such as domestic and overseas equities, corporate bonds, and sovereign government securities, from the portfolios of participating clients to approved borrowers, in return for a fee. The Fund’s stock lending programme is managed by the Global Custodian (Northern Trust). All loans are fully collateralised with government securities, bank letters of credit, certificates of deposit or UK equities settled in CREST. Northern Trust provides certain additional indemnifications as part of the lending agreement with them, to protect the Fund in the event of a borrower default coupled with a collateral shortfall relative to the defaulting position. The maximum value of stock that may be on loan is £150m and an individual borrower limit (applied at the parent borrower level) of £25m is applied. The following table provides an analysis of the securities on loan at 31 March: 68 212 Value on Value on loan at loan at Asset Type 31 March 31 March 2015 2014 £000 £000 UK Equities 886 22,138 Overseas Equities 5,394 37,037 Corporate Bonds 0 8,618 At 31 March 2015, securities were on loan to 4 separate borrowers representing 4 parent groups. The largest single parent exposure was 52% of the lending programme. 15d. Property Holdings Year Year Ending Ending 31 March 31 March 2014 2015 £000 £000 454 Opening balance 454 0 Additions 0 0 Disposals 0 0 Net increase in market value 0 0 Other changes in fair value 0 454 Closing balance 454 There are no restrictions on the realisability of the property or the remittance of income or proceeds on disposal and the Fund is not under any contractual obligations to purchase, construct or develop the property. Nor does it have any responsibility for any repairs, maintenance or enhancements. 69 213 16. Financial Instruments 16a. Financial Instruments – Classification 31-Mar-14 31-Mar-15 Designated as fair Designated Financial value Financial as fair value liabilities through liabilities at through at profit and Loans and amortised profit and Loans and amortised loss receivables cost loss receivables cost £000 £000 £000 £000 £000 £000 Financial assets Fixed Interest 122,677 Securities 123,987 793,786 Equities 821,867 1,190,572 Pooled Investments 1,306,655 308,550 Pooled Property 339,470 188,146 Private equity 193,353 6,770 Derivative contracts 5,630 42,412 Cash 60,553 Other investment 11,076 balances 146,140 82 Debtors 46 2,621,577 42,494 0 2,937,102 60,599 0 Financial liabilities -2,046 Derivative contracts -3,713 -5,462 Creditors -5,834 Other Investment -4,422 Balances -57,567 -6,468 0 -5,462 -61,280 0 -5,834 2,615,109 42,494 -5,462 2,875,822 60,599 -5,834 70 214 16b. Net Gains and Losses on Financial Instruments 31 March 14 31 March 15 £000 £000 Financial assets 242,752 Fair value through profit and loss 478,844 0 Loans and receivables 0 0 Financial liabilities measured at amortised cost 0 Financial liabilities -91,062 Fair value through profit and loss -162,956 0 Loans and receivables 0 0 Financial liabilities measured at amortised cost 0 151,690 Total 315,888 16c. Fair Value of Financial Instruments and Liabilities In accordance with our accounting policies, financial assets and liabilities are included in the accounts on a fair value basis. The Authority has not entered into any financial guarantees that are required to be accounted for as financial instruments. 16d. Valuation of Financial Instruments Carried at Fair Value The valuation of financial instruments has been classified into three levels, according to the quality and reliability of information used to determine fair values. Level 1 Financial instruments at level 1 are those where the fair values are derived from unadjusted quoted prices in active markets for identical assets or liabilities. Products classified as level 1 comprise quoted equities, quoted fixed securities, quoted index linked securities and unit trusts. Listed investments are shown at bid prices. The bid value of the investment is based on the bid market quotation of the relevant stock exchange. Level 2 Financial instruments at Level 2 are those where quoted market prices are not available; for example, where an instrument is traded in a market that is not considered to be active, or where valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data. 71 215 Level 3 Financial instruments at Level 3 are those where at least one input that could have a significant effect on the instrument's valuation is not based on observable market data. Such instruments would include unquoted equity investments and hedge fund of funds, which are valued using various valuation techniques that require significant judgement in determining appropriate assumptions. The values of the investment in private equity are based on valuations provided by the general partners to the private equity funds in which Norfolk Pension Fund has invested. These valuations are prepared in accordance with the International Private Equity and Venture Capital Valuation guidelines, which follow the valuation principles of IFRS and US GAAP. Valuations are usually undertaken annually at the end of December. Cash flow adjustments are used to roll forward the valuations to 31 March as appropriate. The following table provides an analysis of the financial assets and liabilities of the pension fund grouped into Levels 1 to 3, based on the level at which the fair value is observable: With Quoted Using significant market observable unobservable Values at 31 March 2015 price inputs inputs Level 1 Level 2 Level 3 Total £000 £000 £000 £000 Financial assets Financial assets at fair value through 2,404,279 0 532,823 2,937,102 profit and loss Loans and receivables 60,599 0 0 60,599 Total financial assets 2,464,878 0 532,823 2,997,701 Financial liabilities Fair value through profit and loss -61,280 0 0 -61,280 Financial liabilities at amortised cost -5,834 0 0 -5,834 Total financial liabilities -67,114 0 0 -67,114 Net financial assets 2,397,764 0 532,823 2,930,587 72 216 With Quoted Using significant market observable unobservable Values at 31 March 2014 price inputs inputs Level 1 Level 2 Level 3 Total £000 £000 £000 £000 Financial assets Financial assets at fair value through 2,124,882 0 496,695 2,621,577 profit and loss Loans and receivables 42,494 0 0 42,494 Total financial assets 2,167,376 0 496,695 2,664,071 Financial liabilities Fair value through profit and loss -6,468 0 0 -6,468 Financial liabilities at amortised cost -5,462 0 0 -5,462 Total financial liabilities -11,930 0 0 -11,930 Net financial assets 2,155,446 0 496,695 2,652,141 17. Nature and Extent of Risks Arising From Financial Instruments Risk and risk management The Fund's primary long-term risk is that the Fund's assets will fall short of its liabilities (i.e. promised benefits payable to members). Therefore the aim of investment risk management is to minimise the risk of an overall reduction in the value of the Fund and to maximise the opportunity for gains across the whole Fund portfolio. As there is an essential contradiction in these two aims the investment strategy aims to achieve an acceptable overall balance between “risk and reward”. The Fund achieves this through asset diversification to reduce exposure to market risk (price risk, currency risk and interest rate risk) and credit risk to an acceptable level. In addition the Fund manages its liquidity risk to ensure there is sufficient liquidity to meet the Fund's forecast cash flows. The Fund manages these investment risks as part of its overall risk management programme. Responsibility for the Fund's risk management and investments strategies rests with the Pension Fund Committee. Risk management policies are established to identify and analyse the risks faced by the council's pensions operations. Policies are reviewed regularly to reflect changes in activity and in market conditions. 73 217 a. Market risk Market risk is the risk of loss from fluctuations in equity and commodity prices, interest and foreign exchange rates and credit spreads. The Fund is exposed to market risk from its investment activities, particularly through its equity holdings. The level of risk exposure depends on market conditions, expectations of future price and yield movements and the asset mix. The objectives of the Fund’s risk management strategy are to identify, manage and control market risk exposure within acceptable parameters, whilst optimising the return at a given level of risk. In general, excessive volatility in market risk is managed through the diversification of the portfolio in terms of geographical and industry sectors and individual securities. Other Price Risk Other price risk represents the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or foreign exchange risk), whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all such instruments in the market. The Fund is exposed to share and derivative price risk. This arises from investments held by the Fund for which the future price is uncertain. All securities investment presents a risk of loss of capital. Except for shares sold short, the maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. Possible losses from shares sold short are unlimited but restrictions are in place on managers undertaking this activity. The Fund's investment managers mitigate this price risk through diversification and the selection of securities and other financial instruments is monitored by the council to ensure it is within limits specified in the Fund’s investment strategy. 74 218 Other Price Risk - Sensitivity Analysis Following analysis of historical data and expected investment return movement during the financial year, in consultation with the Fund’s performance monitoring advisor, the Fund has determined that the following movements in market price risk are reasonably possible for the 2015-16 reporting period: Potential Market Asset Type Movements (+/-) % UK Bonds including pooled 7.01 Overseas Bonds including pooled 1.59 UK Equities including pooled 10.60 Overseas Equities including pooled 9.21 Index Linked Gilts including pooled 9.47 Property Investments (pooled and direct) 3.53 Private Equity 7.62 Cash and Cash Equivalents (Including Payables and Receivables) 0.02 Total 5.63* * The total % includes the impact of correlation across asset classes at an aggregate level. The potential price changes disclosed above are broadly consistent with a one- standard deviation movement in the value of the assets. This analysis assumes that all other variables, in particular foreign currency exchange rates and interest rates, remain the same. Had the market price of the Fund’s investments increased/decreased in line with the above, the change in the net assets available to pay benefits in the market price would have been as follows (the prior year comparator is also shown below): 75 219 Value as at 31 Percentage Value on Value on Asset Type March 2015 Change Increase Decrease £000 % £000 £000 Cash and Cash Equivalents including payables and receivables 145,241 0.02 145,270 145,212 Investment Portfolio Assets: UK Equities including pooled 510,921 10.60 565,079 456,763 Overseas Equities including pooled 1,084,383 9.21 1,184,255 984,511 UK Bonds including pooled 134,729 7.01 144,174 125,284 Overseas Bonds including pooled 463,654 1.59 471,026 456,282 Index Linked Gilts including pooled 58,169 9.47 63,678 52,660 Pooled & Direct Property Investments 339,924 3.53 351,923 327,925 Private Equity Partnerships 193,353 7.62 208,086 178,620 Total Assets Available to Pay Benefits 2,930,374 5.63 3,095,354* 2,765,394* Value as at 31 Percentage Value on Value on Asset Type March 2014 Change Increase Decrease £000 % £000 £000 Cash and Cash Equivalents including payables and receivables 45,849 0.02 45,858 45,840 Investment Portfolio Assets: UK Equities including pooled 525,520 12.66 592,051 458,989 Overseas Equities including pooled 1,031,346 11.81 1,153,148 909,544 UK Bonds including pooled 128,920 5.47 135,972 121,868 Overseas Bonds including pooled 365,681 3.53 378,590 352,772 Index Linked Gilts including pooled 55,278 8.89 60,192 50,364 Pooled & Direct Property Investments 309,004 3.01 318,305 299,703 Private Equity Partnerships 188,146 7.59 202,426 173,866 Total Assets Available to Pay Benefits 2,649,744 7.18 2,839,996* 2,459,492* * The % change for Total Assets includes the impact of correlation across asset classes, which lowers the total increase and increases the total decrease at an aggregate level. 76 220 Interest Rate Risk The Fund invests in financial assets for the primary purpose of obtaining a return on investments. These investments are subject to interest rate risks, which represent the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Fund's direct exposure to interest rate movements through its gross cash holdings as at 31 March 2015 and 31 March 2014 is set out below. These disclosures present interest rate risk based on the underlying financial assets: Value as at 31 Value as at 31 Asset Type March 2015 March 2014 £000 £000 Investment Cash Balances 58,766 40,844 Cash in hand 1,787 1,568 Total 60,553 42,412 Interest Rate Risk Sensitivity Analysis The council recognises that interest rates can vary and can affect both income to the Fund and the value of the net assets available to pay benefits. A 100 basis point (BPS) movement in interest rates is consistent with the level of sensitivity applied by the Administering Authority when considering risk in its own treasury management activities. The analysis that follows assumes that all other variables, in particular exchange rates, remain constant, and shows the effect in the year on the net assets available to pay benefits of a +/- 100 BPS (1%) change in interest rates: Carrying Amount as at Change in year in the net assets 31 March 2015 available to pay benefits Asset Type +100 BPS -100 BPS £000 £000 £000 Investment Cash Balances 58,766 588 -588 Cash in hand 1,787 18 -18 60,553 606 -606 Currency Risk Currency risk represents the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund is exposed to currency risk on financial instruments that are denominated in any currency other than the functional currency of the Fund (Sterling). The Fund holds 77 221 both monetary and non-monetary assets denominated in currencies other than Sterling and Sterling denominated pooled investment vehicles where the underlying assets are denominated in other currencies. As detailed in note 15b the Fund has various hedging strategies in place to reduce the impact of currency volatility on the Fund assets. The table below the page is prepared after consideration of the hedging strategies in place. Currency Risk Sensitivity Analysis Following analysis of historical data in consultation with the Fund’s performance measurers, the council considers the likely annualised volatility associated with foreign exchange movements to be 2.44% in respect of non-sterling assets including those partially hedged to Sterling but excluding those where full hedging is in place (see note 15b). This analysis assumes that all other variables, in particular interest rates, remain constant. A 2.44% strengthening/weakening of the pound against various currencies in which the Fund holds investments would increase/decrease the net assets available to pay benefits as follows (values shown are for non-Sterling denominated assets were full hedging of currency risk is not in place): Change to net assets Asset Value available to pay Currency Exposure – Asset Type as at 31 benefits March 2015 +2.44% -2.44 % £000 £000 £000 Overseas Equities (including pooled equity funds where underlying assets are non- Sterling denominated) 1,084,383 26,459 -26,459 Private Equity 193,353 4,718 -4,718 Change in net assets available to pay benefits 31,177 -31,177 b) Credit risk Credit risk represents the risk that the counterparty to a transaction or a financial instrument will fail to discharge an obligation and cause the Fund to incur a financial loss. The market values of investments generally reflect an assessment of credit in their pricing and consequently the risk of loss is implicitly provided for in the carrying value of the Fund's financial assets and liabilities In essence the Fund's entire investment portfolio is exposed to some form of credit risk, with the exception of the derivatives positions, where the risk equates to the 78 222 net market value of a positive derivative position. However, the selection of high quality counterparties, brokers and financial institutions minimises credit risk that may occur through the failure to settle a transaction in a timely manner. Contractual credit risk is represented by the net payment or receipt that remains outstanding, and the cost of replacing the derivative position in the event of a counterparty default. The residual risk is minimal due to the various insurance policies held by the exchanges to cover defaulting counterparties. Credit risk on over-the-counter derivative contracts is minimised as counterparties are recognised financial intermediaries with acceptable credit ratings determined by a recognised rating agency. Where a direct counterparty relationship exists, cash collateral is posted when the value of unrealised profit due to the Fund exceeds an agreed limit. Deposits are not made with banks and financial institutions unless they are rated independently and meet the council's credit criteria. Money market funds that are used all have AAA rating from a leading ratings agency. The non-investment cash holding was managed through the treasury management arrangements of the Administering Authority: The credit exposure was as follows: Balances Short term Short term at 31 Balances at Rating (S&P) Rating (S&P) Summary March 31 March 31st March 31st March 2015 2014 2015 2014 £000 £000 Bank Deposit Accounts Barclays Bank PLC A-1 1,092 A-1 789 HSBC A-1+ 1,092 A-1+ 789 Bank Current Accounts Not rated by Not rated by Co-op Bank S&P – Fitch B 5 S&P – Fitch B 11 Total 2,189 1,589 79 223 The majority of Custodied Investment cash is swept overnight to the AAA rated constant NAV money market funds of the custodian(s) and one other provider (Deutsche). The credit exposure on investment cash balances at 31 March 2015 comprise £49.5 million (£37.7m) deposited with AAA rated money market funds, £7.5 million (£1.6m) deposited direct with the custodian HSBC (rated A-1+), £1.8 million (£1.6m) posted to a variation margin account held by Royal Bank of Scotland (rated A-2). c. Liquidity risk Liquidity risk represents the risk that the Fund will not be able to meet its financial obligations as they fall due. The Council therefore takes steps to ensure that the pension fund has adequate cash resources to meet its commitments. The council has immediate access to its pension fund cash holdings, there were no deposits with fixed periods at 31 March 2015 (2014 nil). Liquid Assets The Fund defines liquid assets as assets that can be converted to cash within three months. Illiquid assets are those assets which will take longer than three months to convert into cash. The Fund classifies property (pooled and direct) and private equity partnerships in this category. Percentage of Balances at 31 Percentage of Total Balances at 31 Total Fund March 2015 Fund Assets March 2014 Assets £000 % £000 % 533,277 18.2 497,150 18.8 The Fund regularly monitors and forecasts future cash flow to understand and manage the timing of the Fund's cash flow obligations. All financial liabilities at 31 March 2015 are due within one year. Refinancing Risk The key risk is that the council will be bound to replenish a significant proportion of its pension fund financial instruments at a time of unfavourable interest rates. The council does not have any financial instruments that have a refinancing risk as part of its treasury and investment strategies. 80 224 18. Funding Arrangements In line with the Local Government Pension Scheme Regulations 2013, the Fund's actuary undertakes a funding valuation every three years for the purpose of setting employer contribution rates for the forthcoming triennial period. The last such valuation took place as at 31 March 2013. The next valuation will take place as at 31 March 2016. The funding policy is set out in the administering authority’s Funding Strategy Statement. The key elements of the funding policy are: • to ensure the long-term solvency of the Fund, using a prudent long term view. This will ensure that sufficient funds are available to meet all members’/dependants’ benefits as they fall due for payment; • to ensure that employer contribution rates are reasonably stable where appropriate; • to minimise the long-term cash contributions which employers need to pay to the Fund, by recognising the link between assets and liabilities and adopting an investment strategy which balances risk and return (NB this will also minimise the costs to be borne by council tax payers); • to reflect the different characteristics of different employers in determining contribution rates. This involves the Fund having a clear and transparent funding strategy to demonstrate how each employer can best meet its own liabilities over future years; and • to use reasonable measures to reduce the risk to other employers and ultimately to the council tax payer from an employer defaulting on its pension obligations. The aim is to achieve 100% solvency over a period of approximately 20 years and to provide stability in employer contribution rates where prudently possible. Solvency is achieved when the funds held, plus future expected investment returns and future contributions are sufficient to meet the expected future pension benefits payable. When an employer's funding level is less than 100% of the funding target (full solvency), then a deficit recovery plan will be put in place requiring additional contributions from the employer to meet the shortfall. Funded Deficit % £ millions 2013 actuarial valuation 78% 705 2010 actuarial valuation 80% 486 81 225 The common contribution rate is 29.6% of payroll (2010 22.4%). The employer contribution rates payable (plus cash sums as applicable) arising from the 2013 Valuation are as follows: Employers Contribution Rates Year (% of actual pensionable pay) 1 April 2014 to 31 March 2015 Range from nil to 28.6 1 April 2015 to 31 March 2016 Range from nil to 28.6 1 April 2016 to 31 March 2017 Range from nil to 28.6 Individual employers' rates will vary from the common contribution rate depending on the demographic and actuarial factors particular to each employer. Full details of the contribution rates payable can be found in the 2013 actuarial valuation report and the funding strategy statement on the Fund's website. The valuation of the Fund has been undertaken using the projected unit method under which the salary increase for each member is assumed to increase until they leave active service by death, retirement or withdrawal from service. The principal assumptions were: Financial Assumptions at 31 March 2013 Investment Return (discount % per annum % per annum rate) Nominal Real Discount Rate 4.60 2.10 Salary Increases 3.30 0.80 Price Inflation/Pension Increases 2.50 0 82 226 Mortality Assumptions The Fund is member of Club Vita which provides bespoke set of longevity assumptions specifically tailored to the membership profile of the Fund. The life expectancy assumptions are based on the Fund’s VitaCurves with improvements in line with the CMI_2010 model, assuming the current rate of improvements has reached a peak and will converge to a long term rate of 1.25% p.a. Based on these assumptions, the average future life expectancies at age 65 are as follows: Mortality assumption at age 65 Male Female Current Pensioners 22.1 years 24.3 years Future Pensioners (current age 45) 24.5 years 26.9 years The assumptions have changed since the previous IAS26 disclosure for the Fund in accordance with those used for the recently completed 2013 Triennial valuation. Commutation assumption An allowance is included for future retirements to elect to take 50% of the maximum additional tax-free cash up to HMRC limits for pre-April 2008 service and 75% of the maximum tax-free cash for post-April 2008 service. 19. Actuarial Present Value of Promised Retirement Benefits Under IAS26 the Fund is required to disclose the actuarial present value of promised retirement benefits. These represent the present value of the whole fund liabilities to pay future retirement benefits. The required valuation is carried out by the Hymans Robertson LLP using a similar approach to that employed for individual participating employers reporting pension liabilities under either FRS17 or IAS19. For the avoidance of doubt this approach will result in a different valuation of liabilities than the methodology employed at the triennial funding valuation. Under the IAS 19/FRS17 basis reporting is produced using the same base data as the last completed funding valuation rolled forward to the latest reporting date, taking account of material changes in membership numbers and updating assumptions to the current year and requirements of the reporting approach. In order to assess the value of the benefits on this basis, the Fund Actuary has updated the actuarial assumptions (set out below) from those used for funding purposes (see note 18). 83 227 31 March 2015 31 March 2014 £000 £000 Actuarial present value of promised retirement 4,451,000 3,729,000 benefits The Fund accounts do not take account of liabilities to pay pensions and other benefits in the future. 31 March 2015 31 March 2014 Assumptions Used % % Inflation/Pension Increase Rate Assumption 2.40 2.80 Salary Increase Rate 3.30 3.60 Discount Rate 3.20 4.30 84 228 20. Current Assets 31 March 31 March 2014 2015 £000 £000 Cash In Hand 1,568 Cash In Hand** 1,787 Debtors: 2,175 Contributions due - employees* 2,163 6,586 Contributions due - employers* 6,912 0 Employers special contributions 11 885 Augmentation & strain due 562 5,335 Dividends receivable** 3,175 1,302 Pooled funds rebate due** 1,480 172 UK tax receivable 163 688 Overseas tax receivable 743 182 VAT refund due 469 9 Interest due** 3 17 Stock lending/commission recapture** 10 64 Recharge of fees** 30 5 Prepayments 2 18 Sundry ** 16 17,438 Debtors 15,739 19,006 Current Assets 17,526 *Principally represents amounts due in respect of March payrolls but payable the following month **Cash and Debtors classed as financial instruments (assets) note 16a 85 229 31 March 31 March 2014 2015 £000 £000 Long term debtors: 9,071 Employer contributions 8,406 11 Augmentation & strain due 8 9,082 8,414 Long term debtors comprises of amounts not due to be paid to the Fund for a period of more than 12 months from the balance sheet date. Analysis of Debtors 31 March 31 March 2014 2015 £000 £000 9,866 Central government bodies 9,076 6,389 Other local authorities 6,288 18 NHS Bodies 0 10,247 Other entities and individuals 8,789 26,520 24,153 86 230 21. Current Liabilities 31 March 31 March 2014 2015 £000 £000 Creditors: 0 Transfer values payable (leavers) 22 1,292 Benefits payable 596 3,451 Investment Management Fees** 3,568 2,000 Other Fees & Charges** 2,253 931 UK Taxation payable 992 11 Sundry creditors** 13 7,685 7,444 **Creditors classed as financial instruments (liabilities) note 16a Analysis of Creditors 31 March 31 March 2014 2015 £000 £000 939 Central government bodies 1,004 1,869 Other local authorities 2,120 4,877 Other entities and individuals 4,320 7,685 7,444 87 231 22. Additional Voluntary Contributions The Fund has three in-house AVC providers; Prudential, Clerical Medical and Equitable Life (a legacy arrangement that is not open to new contributors). The value of AVC investments and contributions paid directly to the providers by scheme employers during the year is shown below. Market Market Value 31 Value 31 March 2014 March 2015 £000 £000 5,040 Separately Invested AVC Funds 5,161 2013-14 2014-15 £000 £000 352 AVC contributions paid directly during the year 372 23. Related Party Transactions Norfolk County Council The Fund is administered by Norfolk County Council. Consequently there is a close relationship between the council and the Fund. The council incurred costs in relation to the administration of the Fund and was subsequently reimbursed by the Fund for these expenses. The Local Government Pension Scheme Regulations enables administration expenses to be charged to the Fund. Internal Audit Services are provided by Norfolk Audit Services, the internal audit function of the Administering Authority. Internal legal fees represent the total cost of internal advice provided by the legal services unit of the Administering Authority (NPLaw). The council is also the single largest employer of members in the pension fund. 2013-14 2014-15 £000 £000 Norfolk County Council incurred administration and 1,869 2,120 Investments costs reimbursed by the Fund Norfolk County Council Employer Contributions 36,819 38,145 All monies owing to and due from the Fund were paid within statutory timescales. 88 232 Part of the pension fund cash holdings are invested on the money markets by the treasury management operations of Norfolk County Council. The arrangement is managed through a service level agreement. 2013-14 2014-15 £000 £000 Average investment balance held by NCC Treasury 5,957 7,212 Management Operation Interest earned on balances invested by NCC Treasury 38 40 Management Operation Governance Each member of the Pension Fund Committee is required to declare their interests at each meeting. These are recorded as part of the public record of each meeting. Personnel Employed in the Delivery of the Pensions Function by the Administering Authority All employees of Norfolk County Council (other than those whose profession grants them access to other public service schemes) may join the Local Government Pension Scheme. This includes personnel employed in delivering the pensions function through the Norfolk Pension Fund. Benefits are accrued and employee contributions calculated on a standard national, statutory basis. The Administering Authority (Norfolk County Council) disclosure of senior officer remuneration includes the Head of Finance who has responsibility under S151 of the Local Government Act 1972, for the proper financial administration of the Fund and holds the role of Fund Administrator. The following table sets out the senior officer remuneration disclosure. Remuneration is deemed to include: •Gross pay (before the deduction of employees’ pension contributions). • Expense allowances chargeable to tax and other benefits (as declared on HM Revenue & Customs form P11D). • Compensation for loss of office and any other payments receivable on termination of employment transfer. Figures in the table have been rounded to the nearest hundred pounds. 89 233 Position & Postholder ice Allowances Salary Expenses Compensation for loss of off TotalSub Employer Pension contributions Total Interim Executive 2014-15 £182,300 0 0 £182,300 N/A £182,300 Director of Finance (P Timmins) Interim Head of 2013-14 £95,400 0 0 £95,400 N/A £95,400 Finance (P Timmins) Head of Finance 2013-14 £62,300 0 0 £62,300 £9,200 £71,500 (P Brittain)* *Paul Brittain was the Head of Finance until 30 September 2013 when the post was filled by the appointment of an interim Head of Finance. 24. Contractual Commitments 31 March 2014 31 March 2015 Outstanding Capital Commitments £000 £000 Private equity partnerships 88,330 84,098 Property investment vehicles 9,150 22,400 At 31 March 2015 the Fund had made contractual commitments to private equity funds managed by SL Capital and HarbourVest Partners. Commitments are made in the underlying currency of the Fund (Euros and US Dollars respectively) and are therefore subject to volatility (risk) arising from exchange rate fluctuation. This volatility will impact both on the value of unfunded commitments in Sterling terms and the valuation of the funded interest and monies received as distributions. The Fund’s private equity programme is still relatively immature. The commitments are paid over the investment timeframe of the underlying partnerships. Concurrently as these partnerships mature they distribute capital back to investors. The current value of the funded commitment net of distributions in these funds at 31 March 2015 is included in the net asset statement. 90 234 In addition to the private equity commitments, within the Aviva property portfolio there are unfunded commitments to various property investment vehicles. This total includes Sterling, Australian Dollar and US Dollar denominated commitments to four (four in 2013-14) underlying funds. The foreign exchange exposure on the funded portion of these positions is hedged within the Aviva portfolio but the unfunded commitments are impacted by exchange rate volatility. 25. Contingent Assets The Administering Authority holds charges on property, relating to funding agreements put in place with three employers following the 2010 Valuation. These agreements allow the employers to extend their deficit recovery periods and therefore reduce the contributions immediately payable in return for providing additional security to the Fund. In the event that the employers that are party to these agreements fail to pay contributions due to the Fund at any point in the future these charges may be invoked. The total charges on two properties are £2.233 million (£2.232 million). There are no new agreements resulting from the 2013 Valuation. 91 235 Appendices Appendix I – Participating Employers (Employers with active members during the year) Major Scheduled Bodies • Borough Council of King’s Lynn & West • Breckland Council Norfolk • Broadland District Council • Great Yarmouth Borough Council • Norfolk Chief Constable • Norfolk County Council • North Norfolk District Council • Norwich City Council • NPS Property Consultants Ltd • South Norfolk District Council Scheduled and Resolution Bodies • Acle Academy • Acle Parish Council • Admirals Academy • Alive Management Ltd • All Saints Academy • Antingham & Southrepps Community Primary School • Arden Grove Infant and Nursery • Attleborough High School Academy Academy • Attleborough Town Council • Aylmerton Parish Council • Aylsham Town Council • Beighton Parish Council • Belton with Browston Parish Council • Blofield Parish Council • Bradwell Parish Council • Broads (2006) Internal Drainage Board • Broads Authority • Brundall Parish Council • Buxton With Lamas Parish Council • Caister Academy • Cawston Parish Council • Cherry Tree Academy Marham Junior • Cherry Tree Academy Trust Marham • Cherry Tree Academy Marham Infant • City Academy Norwich • City College Norwich • City of Norwich School • Clenchwarton Primary School • Cliff Park Ormiston Academy • Cliff Park Schools Trust Ltd • Cobholm Primary Academy • College of West Anglia • Costessey Infant School (Academy) • Costessey Junior School (Academy) • Costessey Town Council • Cringleford Parish Council • Cromer Academy Trust • Cromer Town Council • Dereham Town Council • Dersingham Parish Council • Diamond Academy • Diss High School (Academy) • Diss Town Council • Ditchingham Church of England Primary Academy 92 236 • Downham & Stow Bardolph Internal • Downham Market Academy Drainage Board • Downham Market Town Council • Duchy of Lancaster Methwold Church of England Primary • East Norfolk Sixth Form College • East of Ouse, Polver & Nar Internal Drainage Board • Eastern Inshore Fisheries and • Eastgate Academy Conservation Authority • Easton and Otley College • Eaton Hall Specialist Academy • Eaton Primary School • Edith Cavell Academy • Fakenham Academy Norfolk • Fakenham Town Council • Filby Primary School • Flegg High School • Flitcham Church of England Primary • Framingham Earl Parish Council Academy • Gillingham St Michael’s Primary • Great Snoring Parish Council • Great Yarmouth College of Further • Great Yarmouth Norse Education • Great Yarmouth Primary Academy • GYB Services Ltd • Hales & Heckingham Parish Council • Harling Parish Council • Heartsease Primary Academy • Hellesdon High School Academy • Hellesdon Parish Council • Hemblington Parish Council • Hethersett Academy • Hindolveston Parish Council • Hobart High School Academy • Hunstanton Town Council • Iceni Academy • Inspiration Trust • Jane Austin College • Kettlestone Parish Council • King Edward VII Academy • King's Lynn Academy • King's Lynn Internal Drainage Board • Kirby Cane and Ellingham Parish Council • Little Snoring Parish Council • Loddon Parish Council • Lynn Grove High School (Academy) • Martham Parish Council • Martham School Trust • Mattishall Parish Council • Middleton Primary School • Moorlands Church of England Primary Academy • Mundford Church of England Primary • Nar and St Clement’s Children’s Centre • NCS (Assistive Technology) • NCS Transport Ltd • Nelson Academy • Norfolk Educational Services (NES) • Norfolk Police and Crime Commissioner • Norfolk Rivers Internal Drainage Board • Norman Church of England Primary • Norse Care Limited School • Norse Care Services • Norse Commercial Services • Norse Eastern • North Walsham Town Council • Northgate High School • Northrepps Parish Council 93 237 • Norwich Norse • Norwich Primary Academy • Norwich Road Academy • Norwich University of the Arts • Notre Dame High School Academy • NPS (London) Ltd • NPS (Norwich) Ltd • NPS (South East) Ltd • NPS (South West) Ltd • Old Catton Parish Council • Open Academy - Heartsease • Ormiston Herman Academy • Ormiston Venture Academy • Ormiston Victory Academy • Paston College • Peterhouse Primary School • Poringland Parish Council • Redenhall with Harleston Town Council • Reepham High School and College • Right for Success Academy Sponsorship Trust • Runcton Holme Church of England • Saxlingham Nethergate Parish Council Primary School • Sheringham High School (Academy) • Short Stay School for Norfolk • Sir Isaac Newton Free School • Snettisham Parish Council • Snettisham Primary School • South Wootton Parish Council • Southery & District Internal Drainage • Spixworth Parish Council Board • Springwood High School Academy • Sprowston Town Council Trust • St Clements HS Academy • St Martin at Shouldham Church of England Primary Academy • St Mary's Church of England Junior • St Michael's Church of England Academy School (Academy) (King's Lynn) • St Peter & St Paul Carbroke Church of • Stalham Academy England Primary Academy • Stalham High School • Stalham Town Council • Stradbroke Primary • Suffolk Coastal Services • Swaffham Church of England Junior • Swaffham Town Council School • Swanton Morley Parish Council • Taverham High School • Taverham Parish Council • The Free School Norwich • The Howard Junior • The Nicholas Hamond Academy • Thetford Academy • Thetford Free School • Thetford Town Council • Thomas Bullock Primary • Thorpe St. Andrew Town Council • Tilney All Saints VC Primary School • Trowse with Newton Parish Council • Tuckswood Academy and Nursery • Upton with Fishley Parish Council • Village Green Children’s Centre • Village Green Nursery • Wayland High School Academy • Wayland Junior Academy Watton • Weeting VC Primary School • Wells-Next-The-Sea Town Council • Wensum Junior School 94 238 • West Lynn Primary • Whitefriars Church of England Primary Academy • Woodlands Primary Academy • Wormegay Primary • Wymondham Academy College • Wymondham High Academy • Wymondham Town Council • University Technical College Norfolk Admitted Bodies • 4Children • Action for Children (Dereham) • Action for Children (Hethersett) • Action for Children (Thorpe) • Action for Children (Wells) • Age UK Norfolk • Alive Leisure Trust • Anglia Maintenance Services • Biffa Municipal Ltd • Childhood First • Circle Anglia Limited • Edwards and Blake • Edwards and Blake (Neatherd High) • Edwards and Blake (Nicholas Hammond) • Flagship Housing Group • Freebridge Community Housing Ltd • Great Yarmouth Community Trust • Great Yarmouth Port Authority • Great Yarmouth Port Company • Great Yarmouth Racecourse Ltd • Gt Yarmouth Sport & Leisure Trust • Hethel Innovation Ltd • Independence Matters • Kier Support Services • Lafarge Tarmac • Mid Norfolk Citizens Advice Bureau • New Anglia Enterprise Council • Norfolk Association of Local Councils Partnership (Local Enterprise Partnership) • Norfolk Heritage Fleet Trust • Norwich Airport Limited • Pre – School Learning Alliance • Pre – School Learning Alliance (Hunstanton) (Milestones) • Pre – School Learning Alliance (Thorpe) • RM Education • Saffron Housing Trust Limited • Serco Government Services • Stonham • The Matthew Project • Victory Housing Trust 95 239 Appendix II – Disclosure Regulations The Government introduced Disclosure of Information Regulations as a step towards protecting the interests of pension fund members after the occurrence of a few well- known cases of misuse of pension fund assets. These regulations extended the items of basic information to be disclosed and introduced fixed time limits for their disclosure. Pensions Registry There is a registry of all schemes and information about this Scheme has been passed to: The Pensions Regulator Napier House Trafalgar Place Brighton BN1 4DW http://www.thepensionsregulator.gov.uk/ Statement of Investment Principles and Funding Strategy Statement The Norfolk Pension Fund has a published Statement of Investment Principles including details of our compliance with recognised good investment practices and a Funding Strategy Statement which is a summary of the Fund’s approach to funding liabilities. Both documents can be found on the Internet at the following location under the “Investment” and “Funding” sections: http://www.norfolkpensionfund.org/AboutUs/Pages/Formsandpublications.aspx Alternatively a copy can be obtained from the Norfolk Pension Fund: Norfolk Pension Fund Floor 4 Lawrence House 5 St Andrews Hill Norwich NR2 1AD Telephone: 01603 222870 96 240 Appendix III – The Fund Norfolk County Council administers a Pension Fund to provide retirement benefits for all its employees who are members of the Local Government Pension Scheme. Also included in the Fund are employees of the seven District Councils in Norfolk and 225 other bodies who actively participate in the Scheme. Teachers and fire-fighters have their own pension schemes and are not included in the Fund. The County Council has delegated to its Pensions Committee responsibility for deciding upon the best way in which the Pension Fund is invested. The Committee consists of 7 members, 5 appointed by the County Council plus 2 co-opted members representing the District Councils. The Head of Norfolk Pension Fund, the external Investment Managers, the Fund’s Actuary and an employee representative also attend. This Committee meets quarterly. The Executive Director of Finance, together with the Head of Norfolk Pension Fund and other staff, control the investment administration and accounting functions relating to the Fund. The investment performance of the Fund is monitored throughout the year in conjunction with the Fund’s Actuary. The Executive Director of Finance also decides matters relating to policy on benefits. 97 241 Appendix IV – Governance Compliance Statement The Norfolk Pension Fund Governance Compliance Statement as at August 2015 Local Government Pension Scheme Regulations 2013 (as amended) Regulation 55 Principle A – Structure Not compliant* Fully compliant a √ b √ c √ d √ a. The management of the administration of benefits and strategic management of fund assets rests clearly with the main committee established by the appointing council. Full Council have delegated responsibility to Pensions Committee to administer all aspects of the Norfolk Pension Fund on behalf of Norfolk County Council as Administering Authority of the scheme, and on behalf of NCC as an employer within the scheme alongside all other contributing employers, and on behalf of all scheme beneficiaries (scheme members). b. That representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner and deferred members) are members of either the main or secondary committee established to underpin the work of the main committee. In addition to the Norfolk County Council members, 2 district councillors elected by the Local Government Association represent the largest group of employers; an additional observer seat is available to all other employers. Scheme members (including active, deferred and retired) are represented at Committee by the Staff Representative. c. That where a secondary committee or panel has been established, the structure ensures effective communication across both levels. There is no formal secondary committee or panel. Regular employers’ forums and other activities detailed within the communication strategy ensure effective communication. d. That where a secondary committee or panel has been established, at least one seat on the main committee is allocated for a member from the secondary committee or panel. No formal secondary committee or panel has been established. However employers are regularly reminded via the Employers’ Forum and Employers newsletters of the observer seat at Committee. Scheme members are reminded that they can observe committee meetings via the annual “Your Pension” booklet and also at the Annual Meeting. Some Committee Members also attend Employer Forum meetings. 98 242 Principle B – Representation Not compliant* Fully compliant a.i √ .ii √ .iii √ .iiii √ a That all key stakeholders are afforded the opportunity to be represented within the main or secondary committee structure. These include: i Employing authorities (including non-scheme employers, e.g. admitted bodies) Two district councillors elected by the Local Government Association represent the largest group of employers. An additional observer is seat available to all other employers. ii Scheme members (including deferred and pensioner scheme members) Scheme members (including active, deferred and retired) are represented at Committee by the Staff Representative. Scheme members are reminded that they can observe committee meetings via the annual “Your Pension” booklet and also at the Annual Meeting. iii Independent professional observers Hymans Robertson, as Advisers to the Norfolk Pension Fund, attend Committee. iv Expert advisors (on an ad-hoc basis) Expert advisors are invited to attend committee as and when necessary. Principle C – Selection and role of lay members Not compliant* Fully compliant a √ b √ a That committee or panel members are made fully aware of the status, role and function that they are required to perform on either a main or secondary committee. In addition to general Councillor Induction for newly elected members, Pensions Committee members are briefed on appointment to Pensions Committee by the Head of Pensions. Other elected members who do not sit on Pensions Committee are briefed as required / requested. b That at the start of any meeting, committee members are invited to declare any financial or pecuniary interest related to specific matters on the agenda. This is a standing agenda item for each committee meeting. 99 243 Principle D – Voting Not compliant* Fully compliant a √ a The policy of individual administering authorities on voting rights is clear and transparent, including the justification for not extending voting rights to each body or group represented on main LGPS committees. Voting rights are set out in the Norfolk Pension Funds Governance statement which is published on the Funds website, www.norfolkpensionfund.org . All members of Pensions Committee have voting rights, including the Staff Representative. Principle E – Training / facility time / expenses Not compliant* Fully compliant a √ b √ c √ a That in relation to the way in which statutory and related decisions are taken by the administering authority, there is a clear policy on training, facility time and reimbursement of expenses in respect of members involved in the decision making process. We use Norfolk County Councils’ generic elected member remuneration policy, which includes Travel and Subsistence allowances. In addition, the Fund maintains a training budget for elected members for the delivery of our ongoing members training programme, and related expenses. b That where such a policy exists it applies equally to all members of committees, sub- committees, advisory panels or any form of secondary forum. We give the same allowances to other individuals / bodies where necessary, for example the Staff Representative, members of the Pensions Oversight Board (Local Pension Board). c That the administering authority considers the adoption of annual training plans for committee members and maintains a log of all such training undertaken. Committee member training needs are considered alongside the 12 month committee agenda planning process. However training is business driven, and therefore the programme is flexible. This allows us to align training most effectively with operational need / current agenda items, and therefore support member decision making. Member training is supplemented by attending LGE and other associated events, as well as an annual comprehensive 2 day bespoke Knowledge and Understanding event, talking to leading experts about all aspects of LGPS Investment and Governance and current issues, e.g. in 2013 and 2014 this included meeting the Funds Actuary, Hymans 100 244 Robertson, to discuss the outlook for the 2013 valuation; Nomura to discuss transition management; Fidelity regarding corporate governance and stakeholder responsibilities; Goldman Sachs to discuss ‘excellence in pensions’; Hendersons for an overview of fixed interest investing; and DCLG to discuss LGPS 2014 and other issues. A Training Log is maintained. Principle F – Meetings (frequency / quorum) Not compliant* Fully compliant a √ b √ c √ a That an administering authority’s main committee or committees meet at least quarterly. The Pensions Committee meets quarterly. b That an administering authority’s secondary committee or panel meet at least twice a year and is synchronised with the dates when the main committee sits. There is no formal secondary committee or panel. The Employers’ Forum meets regularly, planned around operational requirements. c That administering authorities who do not include lay members in their formal governance arrangements, provide a forum outside of those arrangements by which the interests of key stakeholders can be represented. A Staff Representative (who represents all current, deferred and retired scheme members) sits on Pensions Committee. Also an Observer Seat at Committee is available to Employers not directly represented, and Employers are reminded of this at Forums and via other publications. In addition, regular Employers’ Forums, an Annual Meeting for all scheme members (including Deferreds) and Retired Members annual events are held. Principle G – Access Not compliant* Fully compliant a √ a That subject to any rules in the council’s constitution, all members of main and secondary committees or panels have equal access to committee papers, documents and advice that falls to be considered at meetings of the main committee. All committee members have equal access to committee papers, documents and advice. Minutes of Committee Meetings are published on Norfolk County Councils website www.norfolk.gov.uk. 101 245 Principle H – Scope Not compliant* Fully compliant a √ a That administering authorities have taken steps to bring wider scheme issues within the scope of their governance arrangements. The Norfolk Pension Fund adopts a holistic approach to pension fund management. Pensions Committee is responsible for all aspects of the management of the pension fund (investment and administration) and delivery of its services, including all relevant budgets, strategies and service planning. Principle I – Publicity Not compliant* Fully compliant a √ a That administering authorities have published details of their governance arrangements in such a way that stakeholders with an interest in the way in which the scheme is governed can express an interest in wanting to be part of those arrangements. The Norfolk Pension Funds Governance Statement and Communication and Customer Care Strategy are published on the Funds’ website www.norfolkpensionfund.org, and included within the Pension Fund Annual Report (which is also published on our website), with hard copies of each available on request. Employers are reminded via the Employers Forum and Employers Newsletters that there is an observer seat at Committee for Employers not directly represented. Scheme Members receive an annual booklet with news of the Funds performance, legislative changes and other relevant pension’s news, and are invited to a formal annual meeting. Retired members are invited to the annual retired members’ events, and also receive an annual newsletter. 102 246 Appendix V – Actuarial Statement for 2014-15 by Hymans Robertson LLP This statement has been prepared in accordance with Regulation 57(1)(d) of the Local Government Pension Scheme Regulations 2013, and Chapter 6 of the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the UK 2014/15. This statement is in respect of Norfolk Pension Fund (“the Fund”) which is administered by Norfolk County Council (“the Administering Authority”) Description of Funding Policy The funding policy is set out in the Administering Authority’s Funding Strategy Statement (FSS), dated March 2014. In summary, the key funding principles are as follows: • to ensure the long-term solvency of the Fund i.e. that sufficient funds are available to meet all pension liabilities as they fall due for payment • to ensure that employer contribution rates are stable • to minimise the long-term cost of the Fund by recognising the link between assets and liabilities and adopting an investment strategy that balances risk and return • to reflect the different characteristics of employing bodies in determining contribution rates where the administering authority considers it reasonable to do so • to use reasonable measures to reduce the risk to other employers and ultimately to the Council Tax payer from an employer defaulting on its pension obligations The FSS sets out how the Administering Authority seeks to balance the conflicting aims of securing the solvency of the Fund and keeping employer contributions stable. For employers whose covenant was considered by the administering authority to be sufficiently strong, contributions have been stabilised below the theoretical rate required to return their portion of the Fund to full funding over the deficit recovery period if the valuation assumptions are borne out. Asset-liability modelling has been carried out which demonstrates that if these contribution rates are paid and future contribution changes are constrained as set out in the FSS, there is still a sufficiently high chance that the Fund will return to full funding over the deficit recovery period. Funding Position as at the last formal funding valuation The most recent actuarial valuation carried out under Regulation 36 of the Local Government Pension Scheme (Administration) Regulations 2008 was as at 31 March 2013. This valuation revealed that the Fund’s assets, which at 31 March 2013 were valued at £2,484 million, were sufficient to meet 78% of the liabilities (i.e. the present value of promised retirement benefits) accrued up to that date. The resulting deficit at the 2013 valuation was £705 million. Individual employers’ contributions for the period 1 April 2014 to 31 March 2017 were set in accordance with the Funding Strategy Statement. Principal Actuarial Assumptions and Method used to value the liabilities Full details of the methods and assumptions used are described in the valuation report dated 31 March 2014. 103 247 Method The liabilities were assessed using an accrued benefits method which takes into account pensionable membership up to the valuation date, and makes an allowance for expected future salary growth to retirement or expected earlier date of leaving pensionable membership. Assumptions A market-related approach was taken to valuing the liabilities, for consistency with the valuation of the Fund assets at their market value. The key financial assumptions adopted for the 2013 valuation were as follows: 31 March 2013 Financial assumptions % p.a. % p.a. Nominal Real Discount rate 4.60% 2.10% Pay increases 3.30% 0.80% Price inflation/Pension increases 2.50% - The key demographic assumption was the allowance made for longevity. The life expectancy assumptions used were based on the Fund’s VitaCurves with improvements in line with the CMI 2010 model, assuming the current rate of improvements has reached a peak a will converge to a long term rate of 1.25% p.a.. Based on these assumptions, the average future life expectancies at age 65 are as follows: Males Females Current Pensioners 22.1 years 24.3 years Future Pensioners* 24.5 years 26.9 years *Future pensioners were assumed to be aged 45 at the last formal valuation date. Copies of the 2013 valuation report and Funding Strategy Statement are available on request from the Administering Authority to the Fund or on the Fund’s website. Experience over the period since April 2013 Real bond yields have fallen dramatically since the valuation, placing a higher value on liabilities. Strong asset returns have partially offset this. In aggregate, deficits are likely to have increased since the 2013 valuation. 104 248 The next actuarial valuation will be carried out as at 31 March 2016. The Funding Strategy Statement will also be reviewed at that time. Gemma Sefton FFA Fellow of the Institute and Faculty of Actuaries For and on behalf of Hymans Robertson LLP 8 May 2015 Hymans Robertson LLP 20 Waterloo Street Glasgow G2 6DB 105 249 Appendix VI – Glossary Active Management A style of investment management which seeks to provide outperformance of a relevant benchmark through asset allocation, market timing or stock selection (or a combination of these). Directly contrasted with passive management that seeks to replicate the performance of a selected benchmark. Actuarial Valuation A review of the Pension Fund by a qualified Actuary, which takes place every three years to ensure that employers’ contributions are sufficient to maintain the solvency of the Fund in the long-term. Actuary An independent qualified consultant who carries out the Actuarial Valuation and advises on new investment strategies or changes to the benefit structure. Administering Authority A local authority required to maintain a pension fund under LGPS regulations. Within the geographical boundary of Norfolk this is Norfolk County Council. Admitted Bodies An organisation, which, under the Pension Scheme Regulations, is able to apply to the Administering Authority to join the Scheme (e.g. a contractor providing services to the Council or another scheduled body). Upon acceptance, an Admission Agreement is prepared admitting the organisation and allowing its employees to join. Asset Allocation / Asset Mix The apportionment of a Fund’s assets between asset classes and/or markets. Asset allocation may be either strategic i.e. long-term, or Tactical i.e. short-term, aiming to take advantage of relative market movements. Assumed Pensionable Pay Where an employee loses pay due to sickness or reduced pay family related leave, the pay actually received is substituted with "Assumed Pensionable Pay" when calculating "career average" benefits and employer contributions. Assumed Pensionable Pay is the average of pay in the three months prior to the month in which the reduced pay occurs. Auditor An independent qualified accountant who is required to verify and agree the Pension Fund Accounts and issue an opinion on their accuracy. 106 250 Benchmark A “notional” fund or model portfolio which is developed to provide a standard against which a manager’s performance is measured e.g. for a global equity fund the benchmark against which it will be measured could be made up 70%/30% by UK equities / overseas equities. A target return is generally expressed as some margin over the benchmark. Bond A certificate of debt, paying a fixed rate of interest, issued by companies, governments or government agencies. Collateral An asset (cash or securities) posted from one counterparty to another, and held as a guarantee against the value of a specified portfolio of trades or other transactions. Commonly referred to as margin, the collateral acts as a credit-risk mitigant. A collateral call is the demand by a derivatives counterparty for an investor to transfer cash or securities to collateralise movements in the value of a derivatives contract. Currency Forward An agreement between two counterparties to buy/sell a specified quantity of the underlying currency at a specified future date. Contracts are settled in cash on the expiration date. Custody/Custodian Safekeeping of securities by a financial institution. The custodian keeps a register of holdings and will collect income and distribute monies according to client instructions. Exchange Traded Derivatives Contract Standardised derivatives contracts (e.g. futures contracts and options) that are transacted on an organised futures exchange. Equities Ownership positions (shares) in companies that can be traded on public markets. Often produce income that is paid in the form of dividends. In the event of a company going bankrupt, equity holders’ claims are subordinate to the claims of bond holders and preferred stock holders. Final Pay This is the figure used to calculate members' benefits that have built up on the "final salary" basis. This is the pay in the last year before leaving, or one of the previous two years' pay if that amount is higher. For a part-time employee, the figure used is the pay an equivalent whole-time employee would have received. Pay lost on account of sickness or reduced pay family leave is added back. 107 251 Fixed Interest Securities Investments in stocks mainly issued by governments, which guarantee a fixed rate of interest. FTSE A company that specialises in index calculation. Although not part of a stock exchange, co- owners include the London Stock Exchange and the Financial Times. They are best known for the FTSE 100, an index of the top 100 UK companies (ranked by size). Fund Manager A firm of professionals appointed by the Pensions Committee to carry out day to day investment decisions for the Fund within the terms of their Investment Management Agreement. Gilts Bonds issued by the British government. They are the equivalent of U.S. Treasury securities Hedging A strategy which aims to eliminate a risk in an investment transaction (both upside and downside potential). Often used in the context of overseas investments to eliminate the impact of currency movements. Index A benchmark for the performance of a group of shares or bonds. Index-Linked Securities U.K. Government issue stocks on which the interest, and eventual repayment of the loan, is based on movements in the Retail Price Index. Initial Margin The upfront collateral requirement, set aside as a guarantee to an underlying futures contract, generally a percentage of the notional amount of the contract. Investment Advisor A professionally qualified individual or company whose main livelihood is derived from providing objective, impartial investment advice to companies, pension funds or individuals. Mandate A set of instructions given to the fund manager by the client as to how a Fund is to be managed (e.g. targets for performance against a benchmark may be set or the manager may be prohibited from investing in certain stocks or sectors). 108 252 Market Value The “on paper” value of a security at a specific point in time. It is calculated by multiplying the number of shares held by market price of that share in sterling terms. Outperformance / underperformance The difference in returns gained by a particular Fund against the “average” Fund or an index over a specified time period i.e. a target for a Fund may be outperformance of a given benchmark over a 3-year period. Pensionable Pay This is the pay on which employee and employer pension contributions and "career average" benefits are based. Where an employee loses pay due to sickness or reduced pay family related leave then "Assumed Pensionable Pay" is used instead to calculate employer contributions and benefits. Performance A measure, usually expressed in percentage terms, of how well a Fund has done over a particular time period – either in absolute terms or as measured against the “average” Fund of a particular benchmark. Portfolio Term used to describe all investments held. Private Equity Investments in new or existing companies and enterprises which are not publicly traded on a recognised stock exchange. Regulations The Scheme is governed by Regulation approved by Parliament. Necessary amendments are made to these Regulations by means of Statutory Instruments. Resolution Body (designating body) A resolution body is an organisation which has the right to join the Scheme if it elects to do so (e.g. a Parish Council). Membership may apply to some or all of its employees. Risk Generally taken to mean the variability of returns. Investments with greater risk must usually promise higher returns than more “stable” investments before investors will buy them. Scheduled Bodies These are organisations as listed in the Local Government Pension Scheme Regulations 1997 (Schedule 2) such as County Councils and District Councils etc, the employees of which may join the Scheme as of right. Securities Investment in company shares, fixed interest or index-linked stocks. 109 253 Statement of Investment Principles Requirement, arising from the Pensions Act 1995, that all occupational pension plan trustees must prepare and maintain a written Statement of Investment Principles outlining policy on various investment matters (e.g. risk, balance between real and monetary assets, realisability of assets etc). Transfer Values Capital value transferred to or from a scheme in respect of a contributor’s previous periods of pensionable employment. Unit Trusts A method which allows investors’ money to be pooled and used by fund managers to buy a variety of securities. Variation Margin A cash collateral requirement that moves up and down with the value of a futures contract. Yield Curve A graphic line chart that shows interest rates at a specific point for all securities having equal risk, but different maturity dates. For bonds, it typically compares the two- or five- year Treasury with the 30-year Treasury. 110 254 Report to Pensions Committee 8 September 2015 Item No 15 Corporate Governance and Shareholder Engagement Report Joint Report by the Executive Director of Finance and Head of Pensions 1. Background 1.1 The Committee have developed their own policy on Corporate Governance in line with industry best practice. Details of the current policies on Voting and Engagement are set out in Appendix 4 and 5 of the Norfolk Pension Fund Statement of Investment Principles (SIP). A copy of the SIP can be found on our website at www.norfolkpensionfund.org (type SIP into the ‘Site Search’ box). 1.2 The voting policy (Appendix 4 in the SIP) seeks to ensure that good practice in Corporate Governance will improve the management of companies and thereby increase long term shareholder value. The policy expects Investment Managers to make regular contact at senior executive level with the companies in which the Fund’s assets are invested, both as an important element of the investment process and to ensure good Corporate Governance. Key AGM voting and manager discussion themes are as follows: • Board structure • Chairman independence • Executive remuneration • AGM proposals 1.3 The key themes of the engagement policy (Appendix 5 in the SIP) are as follows. The Fund expects companies to: • Demonstrate a positive response to all matters of social responsibility • Take environmental matters seriously and produce an environmental policy on how their impact can be minimised • Monitor environmental impacts and take all reasonable and practical steps to reduce environmental damage • Make regular and detailed reports of progress on environmental issues available to shareholders • Openly discuss the environmental impacts of their business with shareholders • Establish procedures that will incrementally reduce their environmental impact • Comply with all environmental and other relevant legislation and seek to anticipate future legislative requirements 1.4 Voting has been undertaken in accordance with the Pension Fund’s policy by the Research Recommendations and Electronic Voting organisation (RREV). The Fund’s investment managers have continued to engage with companies and markets to improve governance generally. 1 255 2. Voting 2.1 Details of all votes cast for UK and overseas companies can be found on our website at www.norfolkpensionfund.org. 2.2 Norfolk Pension Fund does not vote in share blocked markets. Share blocking is a mechanism which provides for a cut-off date before shareholder meetings so that share transactions taking place after this date cannot lead to the transfer of the voting rights. This restricts the ability of managers to sell shares for a period around the time of company meetings and may impact on their ability to carry out timely transactions. 2.3 In Europe much progress has been made in this area over the last few years, particularly with the introduction and revision of the Shareholder Rights Directive. In Europe there are currently four countries that have some residual restrictions regarding share blocking (Norway, Switzerland, Luxemburg and Iceland). 2.4 During the first and second quarters of 2015 (1 January 2015 to 30 June 2015) there were 59 UK company meetings, including Annual General Meetings (AGMs), Extraordinary General Meeting (EGMs) etc., covering 1,057 resolutions relating to the Fund’s shareholdings. Further analysis of the votes cast at UK Company meetings by the Norfolk Pension fund is shown below. Votes “For” 1,011 Votes “Against” 44 Votes Abstained from 2 Total Votes 1,057 2.5 Votes against the management of UK companies only are shown in Appendix 1. 3. Engagement 3.1 Norfolk Pension Fund expects the fund managers to engage with the companies in which we invest, with a particular emphasis on environmental issues. The fund managers have supplied us with highlights of their engagement, which is summarised in Appendix 2. 4. Voting and Engagement - Pooled Funds 4.1 Fidelity and L&G invest in pooled funds on behalf of the Fund. Accordingly we are not able to exert direct control over their voting or engagement activity. However at previous Committee meetings it has been agreed that these managers operate a high quality programme of corporate governance. An update of their activity is included in Appendix 2. 5. Living Wage Campaign 5.1 As part of engagement reviews with the equity managers we have specifically discussed their engagement with companies on the UK Living Wage where appropriate and more widely on employment rights; particularly in respect of overseas investments. 2 256 5.2 Following the Committee’s commitment to asking its managers to engage with companies in respect of “employee rights and the risks within this, including employee safety, working conditions, working hours and pay (including where appropriate the UK Living Wage Campaign…)”, the Living Wage Campaign has requested that the Norfolk Fund agrees to be a co-signatory on engagement letters with UK FTSE100 companies. Examples of these letters are attached as Appendix 3. 5.3 The Campaign’s aim is to co-ordinate a group of institutional investors that share a supportive interest in the UK Living Wage. Investors are asked to co-sign private letters to the CEOs of FTSE 100 companies encouraging progress on the Living Wage and inviting them to let investors know where they stand on accreditation as UK Living Wage employers. 5.4 Other current co-signatories include two LGPS funds. 5.5 We have asked all of our equity managers if a client becoming a signatory to these letters presents any practical issues to them. They have all confirmed they have no practical or other objection to the Fund deciding to move ahead with this. 5.6 The Committee should consider if it wishes the Fund to become a co-signatory to the company campaign letters by the Living Wage Campaign. 6. Local Authority Pension Fund Forum 6.1 The Norfolk Pension Fund is a member of The Local Authority Pension Fund Forum (LAPFF). LAPFF exists to promote the investment interests of local authority pension funds and to maximise their influence as shareholders, whilst promoting corporate social responsibility and high standards of corporate governance among the companies in which they invest. 6.2 LAPFF Business Meetings were held in March 2015 and June 2015. Items discussed at these meetings are detailed in the following table: Date of Meeting: Items Discussed: 24 March 2015 • Corporate Tax Transparency Initiative • Shadow Pension Board Update • Responsible Investment Reporting in Public Equity • Greater Manchester Pension Fund Collaborative Investment 16 June 2015 • Capital Market Reform: Pooled Fund Voting • LAPFF Carbon Strategy • Principles for Responsible Investment and its Progress • Mergers & Acquisition Project 3 257 7. Other Implications 7.1 Equality Impact Assessment (EqIA) There are no issues relevant to equality in this report. 7.2 Any Other Implications: Officers have considered all the implications which members should be aware of. Apart from those listed in the report (above), there are no other implications to take into account. 8. Section 17 – Crime and Disorder Act 8.1 There are no implications under the Crime and Disorder Act. 9. Recommendation 9.1 The Pensions Committee notes the contents of this report. 9.2 The Committee should consider if the Fund should agree to become a co-signatory to the investor letters in respect of the UK Living Wage. Background Papers Appendix 1 – 2015 Q1 & Q2 Voting and Results UK Appendix 2 – Engagement 1 January 2015 to 30 June 2015 Appendix 3 – UK Living Wage Campaign – engagement letter examples Officer Contact If you have any questions about matters contained in this paper please get in touch with: Nicola Mark Tel no: 01603 222171 email address: [email protected] If you need this Report in large print, audio, Braille, alternative format or in a different language please contact Doreen Metcalf on 0344 800 8020 or 0344 800 8011 (textphone) and we will do our best to help. 4 258 Votes: Quarters 1 and 2 - 2015 APPENDIX 1 Meeting Fund Res. Company Item Issue Proponent For Against Abstain Date Vote Vote AGAINST as per Baillie Gifford instruction for the following reasons: 1] Introducing a new performance based remuneration scheme because those original performance criteria have not been met, will seriously undermine the validity & credibility of any such performance scheme. 2] It is an inappropriate time to introduce a new scheme which will have 8 ASOS plc Approve Long-Term Incentive Scheme 15/01/15 Management Against 85% 15% 0% the effect of increasing remuneration, after what has clearly been a difficult year for the business & a painful one for the shareholders. As there is only one year left of the original scheme, this is in our opinion, another good reason why waiting until September 2015 before introducing a new one is unlikely to have any damaging impact. Vote AGAINST Norfolk County opposes remuneration policies 2 Euro money Institutional Investor plc Approve Remuneration Policy 29/01/15 Management Against 87.34% 12.04% 0.62% that are not consistent with best practices Vote AGAINST the nominee attended less than 75% of the 6 Euro money Institutional Investor plc Re-elect Christopher Fordham as Director board and committee meetings that they were scheduled to 29/01/15 Management Against 97.9% 1.8% 0.3% attend during the previous fiscal year without a valid excuse Vote AGAINST The Company does not respect the Combined 12 Euro money Institutional Investor plc Re-elect The Viscount Rothermere as Director Code recommendation that the board comprises at least half of 29/01/15 Management Against 91% 9% 0% independents non-executive directors. Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of independents non-executive directors and the nominee 13 Euro money Institutional Investor plc Re-elect Sir Patrick Sergeant as Director 29/01/15 Management Against 89% 10% 0% attended less than 75% of the board and committee meetings that they were scheduled to attend during the previous fiscal year without a valid excuse Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of independents non-executive directors. The nominee is a non- 14 Euro money Institutional Investor plc Re-elect John Botts as Director 29/01/15 Management Against 90% 9% 1% independent member of the audit and remuneration committees. Furthermore, Norfolk will vote against any non independent SID. Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of 15 Euro money Institutional Investor plc Re-elect Martin Morgan as Director independents non-executive directors. Norfolk will vote against 29/01/15 Management Against 90.9% 8.6% 0.5% any non-independent non-executive directors sitting on the Remuneration Committee. Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of 6 Mitchells & Butlers plc Re-elect Eddie Irwin as Director independents non-executive directors. The nominee is a non- 29/01/15 Management Against 81.4% 15.4% 3.2% independent member of the audit and remuneration committees. Vote AGAINST Norfolk will vote against the chairman of 7 Mitchells & Butlers plc Re-elect Bob Ivell as Director 29/01/15 Management Against 87% 4% 9% nomination committee if no SID is appointed. Page 1 of 4 259 Meeting Fund Res. Company Item Issue Proponent For Against Abstain Date Vote Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of independents non-executive directors and the nominee 9 Mitchells & Butlers plc Re-elect Douglas McMahon as Director 29/01/15 Management Against 92% 5% 3% attended less than 75% of the board and committee meetings that they were scheduled to attend during the previous fiscal year without a valid excuse Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of 10 Mitchells & Butlers plc Re-elect Ron Robson as Director independents non-executive directors. The nominee is a non- 29/01/15 Management Against 91% 6% 3% independent member of the audit and remuneration committees. Vote AGAINST the set of proposals to create separate classes of tracking stock is warranted, since the potential benefits of increased transparency & investor choice are outweighed by a 1 Liberty Global plc Adopt New Articles of Association 24/02/15 Management Against 81% 19% 0% number of serious, intractable risks & economic consequences inherent to fracturing the shareholder base through these proposals Vote AGAINST the set of proposals to create separate classes of tracking stock is warranted, since the potential benefits of Approve Management and Allocation Policies increased transparency & investor choice are outweighed by a 2 Liberty Global plc Relating to the Liberty Global Group and LiLAC 24/02/15 Management Against 81% 19% 0% number of serious, intractable risks & economic consequences Group inherent to fracturing the shareholder base through these proposals Vote AGAINST the set of proposals to create separate classes of tracking stock is warranted, since the potential benefits of increased transparency & investor choice are outweighed by a 3 Liberty Global plc Approve Share Consolidation 24/02/15 Management Against 79.4% 20.4% 0.2% number of serious, intractable risks & economic consequences inherent to fracturing the shareholder base through these proposals Vote AGAINST this proposal is warranted as it would allow Amend Articles of Association with Respect to Class B shareholders, who are entitled to 10 votes per share, 4 Liberty Global plc Voting on the Variation of Rights Attached to 24/02/15 Management Against 68% 29% 3% to have a disproportionate influence on changes made to other Classes of Shares classes of common stock Vote AGAINST this proposal is warranted as the company has 5 Liberty Global plc Authorise Shares for Market Purchase not made the text of the proposed Master Put/Call Agreement 24/02/15 Management Against 85% 11% 4% available to shareholders. Vote AGAINST this proposal is warranted, the Company is seeking a general authority under Section 190 of the UK Companies Act 2006 for the purchase of shares held by directors of the company at an unspecified occasion in the 6 Liberty Global plc Approve the Director Securities Purchase Proposal 24/02/15 Management Against 85.5% 10.4% 4.1% future. As shareholders cannot determine whether future corporate actions connected to these related-party transactions will be in their best interests, support for this proposal is not warranted. Vote AGAINST this proposal to create a separate class of tracking stock is warranted because the potential benefits of increased transparency & investor choice are outweighed by a 8 Liberty Global plc Adopt New Articles of Association 24/02/15 Management Against 75.4% 24.3% 0.3% number of serious, intractable risks & economic consequences inherent to fracturing the shareholder base through these proposals. Vote AGAINST this proposal is warranted as it would allow Amend Articles of Association with Respect to Class B shareholders, who are entitled to 10 votes per share, 9 Liberty Global plc Voting on the Variation of Rights Attached to 24/02/15 Management Against 55.1% 40.3% 4.6% to have a disproportionate influence on changes made to other Classes of Shares classes of common stock Page 2 of 4 260 Meeting Fund Res. Company Item Issue Proponent For Against Abstain Date Vote Re-elect Arnold Donald as Director of Carnival Vote AGAINST any executive with a fixed contract over two 3 Carnival plc 14/04/15 Management Against 97.9% 1.6% 0.5% Corporation and as a Director of Carnival plc years Vote AGAINST any non-independent non-executive directors Re-elect Richard Glasier as Director of Carnival 4 Carnival plc sitting on the Audit and Remuneration committees and at least 14/04/15 Management Against 96.6% 2.8% 0.6% Corporation and as a Director of Carnival plc half of the board is not independent. Re-elect Sir John Parker as Director of Carnival Vote AGAINST any non-independent non-executive directors if 6 Carnival plc 14/04/15 Management Against 94% 5% 1% Corporation and as a Director of Carnival plc at least half of the board is not independent. Vote AGAINST any non-independent non-executive directors sitting on the Audit committee and at least half of the board is Re-elect Stuart Subotnick as Director of Carnival 7 Carnival plc not independent. In addition, he is the designated Senior 14/04/15 Management Against 92% 7% 1% Corporation and as a Director of Carnival plc Independent Director and he is considered to be a non- independent NED. Vote AGAINST the chairman of the Nomination Committee if 4 Bodycote plc Re-elect Alan Thomson as Director 23/04/15 Management Against 98% 2% 0% there is no designated Senior Independent Director. Vote AGAINST any non-independent non-executive directors sitting on the Remuneration committee. In addition, she is the 10 Reed Elsevier plc Re-elect Lisa Hook as Director 23/04/15 Management Against 98% 1% 1% designated Senior Independent Director , a role which should be reserved for an unquestionably independent NED. Vote AGAINST any director with low meeting attendance 12 Reed Elsevier plc Re-elect Robert Polet as Director 23/04/15 Management Against 79.45% 15.20% 5.35% without a suitable explanation. Authorise Issue of Equity without Pre-emptive Vote AGAINST the proposal exceeds pre-emption guidelines 27 HSBC Holdings plc Rights in Relation to Contingent Convertible best practice. The award is equivalent to 18.9% of the issued 24/04/15 Management Against 96.3% 3.2% 0.5% Securities share capital. Vote AGAINST substantial special share awards have been granted to the new CEO to compensate for awards forfeited at his previous employer, BP. However, he had already left BP 3 Centrica plc Approve Remuneration Report 27/04/15 Management Against 65.8% 32.5% 1.7% before being appointed to Centrica and was accorded good leaver status by BP's remuneration committee, thus keeping his entitlement to pre-rated share awards. Vote AGAINST as NCC opposes remuneration practices that 3 ARM Holdings plc Approve Remuneration Report 30/04/15 Management Against 67% 31% 2% are not consistent with best practices. Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of 4 Jardine Lloyd Thompson Group plc Re-elect Lord Leach of Fairford as Director independents non-executive directors. Norfolk will vote against 01/05/15 Management Against 84% 15% 1% any non-independent non-executive directors sitting on the Remuneration Committee. Vote AGAINST The Company does not respect the Combined Code recommendation that the board comprises at least half of independents non-executive directors. In addition, the nominee is a non-independent member of the audit committee & the 8 Jardine Lloyd Thompson Group plc Re-elect Lord Sassoon as Director 01/05/15 Management Against 84.2% 13.3% 2.5% committee comprises less than 100% independents. Furthermore, Norfolk will vote against any non-independent non-executive directors sitting on the Remuneration Committee. Page 3 of 4 261 Meeting Fund Res. Company Item Issue Proponent For Against Abstain Date Vote Authorise Issue of Equity without Pre-emptive Vote AGAINST the proposal exceeds pre-emption guidelines 27 Standard Chartered plc Rights in Relation to Equity Convertible Additional best practice. The award is equivalent to 20% of the issued 06/05/15 Management Against 95% 5% 0% Tier 1 Securities share capital. Vote AGAINST an LTIP award at the maximum level of 200% of salary is being granted to the FD for retention purposes. The case for granting at the exceptional level in the particular 2 Keller Group plc Approve Remuneration Report 14/05/15 Management Against 73% 20% 7% circumstances has not been made. The performance conditions for the plan are not being made rigorous or reflect the higher award opportunity. Vote AGAINST the proposal exceeds pre-emption guidelines 22 Lloyds Banking Group plc Authorise Issue of Equity without Pre-emptive Rights best practice. The award is equivalent to 10% of the issued 14/05/15 Management Against 96% 3% 1% share capital. Authorise Issue of Equity without Pre-emptive Vote AGAINST the proposal exceeds pre-emption guidelines 23 Lloyds Banking Group plc Rights in Relation to the Issue of Regulatory Capital best practice. The award is equivalent to 17.49% of the issued 14/05/15 Management Against 94% 5% 1% Convertible Instruments share capital. Vote AGAINST for FY2015 a guaranteed bonus of GBP 560,000 has been promised to the new CEO on top of the 2 Intertek Group plc Approve Remuneration Report 15/05/15 Management Against 48% 51% 1% considerable buyout package (valued at GBP 5 million) awarded to him following his recruitment from Inchcape, 2 Ocado Group plc Approve Remuneration Report Vote AGAINST policy not consistent with good practice 15/05/15 Management Against 79% 19% 2% Vote AGAINST The Company does not respect the Combined 9 Ocado Group plc Re-elect Jorn Rausing as Director Code recommendation that the board comprises at least half of 15/05/15 Management Against 92% 8% 0% independents non-executive directors. Vote AGAINST The Company does not respect the Combined 10 Ocado Group plc Re-elect Robert Gorrie as Director Code recommendation that the board comprises at least half of 15/05/15 Management Against 92% 8% 0% independents non-executive directors. Vote AGAINST the chairman of the Nomination Committee if 4 Inchcape plc Re-elect Ken Hanna as Director 21/05/15 Management Against 98% 2% 0% there is no designated Senior Independent Director. Vote AGAINST as profit share awards are uncapped, the new Executive Chairman has been appointed on a basic salary 1 Euromoney Institutional Investor plc Approve Revised Remuneration Policy twice as high as that of the Managing Director and over four 01/06/15 Management Against 86.6% 12.8% 0.6% times higher than the outgoing Chairman, suggests that the policy framework for basic salaries is insufficiently robust Vote AGAINST The Company does not respect the Combined 3 Liberty Global plc Elect Director John C. Malone Code recommendation that the board comprises at least half of 25/06/15 Management Against 86.66% 12.67% 0.67% independents non-executive directors. Vote AGAINST The Company does not respect the Combined 4 Liberty Global plc Elect Director Larry E. Romrell Code recommendation that the board comprises at least half of 25/06/15 Management Against 77% 16% 7% independents non-executive directors. Vote AGAINST the CEO received a sizeable cash bonus 5 Liberty Global plc Approve Remuneration Report without performance or even time based criteria for entering 25/06/15 Management Against 57.37% 42.37% 0.26% into a new employment agreement. Page 4 of 4 262 Appendix 2 Engagement during the period 1 January 2015 to 30 June 2015 Baillie Gifford Baillie Gifford reported direct engagement with the following companies in the first half of 2015: Company Discussion Topic Intertek Group Corporate Governance Imagination Technologies AGM or EGM Proposals Wood Group AGM or EGM Proposals ASOS Executive Remuneration British American Tobacco Executive Remuneration James Fisher & Sons Executive Remuneration Standard Chartered Executive Remuneration & Corporate Governance BHP Billiton Environmental/Social Rio Tinto Environmental/Social Howden Joinery AGM or EGM Proposals Jupiter Fund Management AGM or EGM Proposals Keller AGM or EGM Proposals ARM Holdings Executive Remuneration Burberry Group Executive Remuneration EnQuest Executive Remuneration In quarter one, Baillie Gifford engaged with British American Tobacco about changes to executive remuneration via a one-to-one conference call with the chairman and the remuneration committee chairman, as well as participating in a group engagement call with other shareholders and members of the Investment Association. The main change was to increase the Chief Executive's long-term incentives from 400% to 600% of salary. The proposed increase equated to an extra £2.3 million per annum in total pay opportunity. The company explained that the increase was to ensure the CEO's package was competitive with similar-sized companies. However, the committee did not intend to strengthen the relevant performance conditions and had completed a remuneration review and consultation process in 2014. Baillie Gifford did not agree with the rationale for the proposed changes or consider them appropriate. This was in line with several other shareholders and the company subsequently withdrew the proposed changes. In the second quarter, Baillie Gifford engaged with BHP Billiton on environmental issues via the company's Head of Health, Safety and Environment and Senior Governance Manager. It was clear that the company was concerned about the recent increase in fatalities and that detailed investigations had been initiated. The demerger of the business South 32 means the company has removed some of the "dirtier" aspects of the business. Baillie Gifford were keen to understand more on the outcomes of the investigations into the fatalities and on the fossil fuel activities, including how the company's scenario-based approach to climate change planning is working in practice and influencing future strategies. 1 263 Capital International Limited In the first quarter of 2015, Capital jointly signed an engagement letter to senior management at Hyundai Motor Corp (HMC). The letter, written by APG Asset Management, not only highlighted shareholders’ concerns on the deal to bid for land in Seoul but also contained steps to improve the quality of governance at HMC. These steps included: to review the state of the HMC governance profile; to strengthen the board’s independent oversight responsibilities; and to increase transparency and communication with shareholders. This round of engagement proved fruitful and concluded with shareholders represented by APG Asset Management at the HMC AGM reiterating the points that were raised in the jointly signed letter. In response, the President and CEO, Mr Kim Choong-ho, said: “HMC welcomes the suggestions and will rigorously find ways to embrace those suggestions and implement them as much as possible.” Capital are encouraged by the company’s responses and will continue to monitor for the implementation of governance improvements. In quarter two, Capital engaged with Monsanto on the issue of proxy access - allowing a qualifying shareholder or group of shareholders to nominate directors on a company’s proxy ballot. Capital confirmed that we are generally supportive of the concept of proxy access, but that it would apply a ‘case-by-case’ approach, depending on the proposal’s ownership threshold and length of holding period, as well as management’s response. The Monsanto shareholder proposal was approved by a majority of shareholders, and Monsanto had another meeting with Capital Group to clarify the next steps before the 2016 annual meeting. This interaction with Monsanto illustrates how active and early engagement with companies can help shareholders make significant progress on the issue of proxy access. Capital engaged with Thomas Cook, Intertek, SSE, Enagas, Ace, Chevron, Monsanto, Technip, Rio Tinto, Beijing Enterprises, Boeing, Abbot Laboratories, Exedy, Sumitomo Real Estate, Goldman Sachs, Nakanishi, Monsanto, Time Warner, China Shenhua and Danone on a range of environmental, social and governance issues between January and June 2015. Fidelity Fidelity engaged with the following companies between January and June 2015: Company Discussion Topic Hewlett Packard Shareholder Resolution Novartis Executive Remuneration Novo-Nordisk Executive Remuneration Toyota Motor Share Creation Denso Appointment of Auditor HSBC Holdings (UK) Executive Remuneration JPMorgan Chase Separation of Chairman & Chief Executive Roles In quarter one, Fidelity engaged with Severn Trent PLC and discussed the company's innovative ways of dealing with water problems in its operations. Historically, the company has struggled on water quality, serious supply interruptions, blockage and flooding 2 264 incidents. However, they are now boosting their proactive work in the area and prioritising early investments to help improve performance. Fidelity also attended a conference on cyber security in quarter one, specifically looking at legal and regulatory considerations in the UK, US and Europe. The importance of cyber security being a Board-issue was discussed, specifically in relation to the reputational risks and fines that a company may suffer. It was pointed out that the UK regulator is now going directly to Board level to work out who is to blame and is recommending that companies include a cyber/IT expert on their boards to have oversight of data security. In quarter two, Fidelity engaged with Britvic Plc who are continuing to improve the health credentials of their offerings. The probability of a UK sugar tax on certain foods and drinks and the effect it will have on their products was discussed as it is recognised that the health aspects of soft drinks is becoming a major focus in the UK and Europe. It was clear the company is focusing more and more on this aspect of their products and Fidelity will continue to engage on the topic. Fidelity attended a meeting held by Microsoft Corp where they had representatives from the Digital Crime Unit who discussed the work they do to identify and disrupt cybercrime across the globe. Microsoft believe this is an area where they have the opportunity to make a direct impact and are an industry leader in this respect. L&G L&G engaged with the following companies between January and June 2015: Company Discussion Topic Standard Chartered Board Structure Microsoft Environmental and Social Issues Chevron Climate Change Samsung Electronics Shareholder Rights Du Pont Board Structure McDonald’s Shareholder Rights Danone Environmental and Social Issues Royal Dutch Shell Environmental and Social Issues In the first quarter of 2015, L&G signed up to a collaborative letter to the SEC (Securities and Exchange Commission) asking for improved disclosure of carbon asset risks by oil and gas companies. The letter discussed the carbon asset risks to these companies and investor efforts to improve disclosure through letters, dialogues, resolutions and "disclosure expectations" documents. A draft Japanese Corporate Governance Code was published last December by the Financial Services Authority, to which L&G submitted a response in their consultation in January. The Code has since been finalised and is now being incorporated into the listing rules at Tokyo Stock Exchange. L&G again submitted a response in their consultation, this time to the Stock Exchange, to push for progressive changes needed to transform the corporate cultures in Japan. 3 265 In quarter two, L&G visited the Royal Dutch Shell operations in Alaska to better understand the economics for drilling oil in the Arctic, as well as the environmental and social risks and the steps taken to mitigate these issues. Shell believes there is long term potential in the region with approximately 27bn barrels of oil and 132tn cubic feet of natural gas in the Alaska outer continental shelf. The permitting process for exploration is highly complex and short given the limited window of opportunity for drilling in this environment. L&G also had the opportunity to meet local communities to better understand their concerns with the operation and how they are working with Shell to overcome issues that could potentially impact their culture. Shell is aware that this is a high risk project and any incident in this environmentally sensitive region would result in them abandoning their operations with no second chance. L&G attended the Women in Governance event in New York that brings together shareholders and board directors in order to establish contacts and have a frank exchange of ideas in the ESG space. Under discussion was shareholder/director engagement; long term vs short term corporate strategies; and board effectiveness, tenure and diversity. Whilst in New York, L&G also met with the Lead Independent Directors of several major North American companies, including PepsiCo and Verizon Wireless, and discussed major issues affecting their businesses. Sarasin In quarter one, Sarasin continued to make progress raising the profile of their concerns that the lack of prudence in International Financial Reporting Standards (IFRS) results in damaging short-term behaviour and risks for investors. In the years leading up to the financial crisis, Sarasin believe IFRS resulted in banks systematically underreporting the costs of their loans due to short-term and incurred loan loss provisioning rules, and overstated earnings due to their ability to count unrealised paper gains on their trading book as profit. Not only did it result in a lack of clarity for shareholders around real and sustainable profits but it contributed to excessive bonus payments and risky behaviour. In February this year Sarasin published a letter in the Financial Times urging the European Commission to act. The letter provoked a flow of public responses also published in the FT, including letters from the Chair of the IASB and the Chair of the Basel Committee. In quarter two, Sarasin & Partners co-filed resolutions with the Aiming for A coalition at BP and Shell’s annual general meetings. These resolutions asked the companies to articulate a more detailed long-term climate strategy. The resolutions were supported by the companies and passed with strong majorities. They were widely covered by the press and have contributed to an increasing number of investor interventions in the broader climate change dialogue. Sarasin also signed letters to the finance ministers of the G7 countries, asking them to support a long term global emissions reduction goal in the Paris agreement, and the submission of short to medium-term national emissions pledges and country level action plans. 4 266 Wellington In quarter one, Wellington engaged with a US-based automobile parts company to learn more about its supply-chain management system, its process of tracking and auditing suppliers, and its reporting on the use of conflict minerals. The company has adopted new supplier policies, including prohibiting all minerals sourcing from the Democratic Republic of the Congo (DRC) in order to avoid reputational and operational risks associated with conflicts in the region. An increasing number of suppliers have followed the company’s lead and joined the Conflict-Free Sourcing Initiative. Currently, three of the company’s main products contain minerals: tire bead wire, which is coated with copper and tin; tungsten-studded snow tires; and racing/commercial tires that contain radio-frequency identification (RFID) chips, which contain tin, tungsten, and gold. Although evaluating this issue remains challenging, the new policies and framework have helped the company reduce its monitoring costs. Wellington also spoke with an oil and gas company about a persistent shareholder request for the company to publish a report on its response to climate-change policy in quarter one. This recurring proposal has received moderate shareholder support in the past, causing the company to be more transparent on its strategy and views on climate change- related risks. In fact, the shareholder proponent acknowledged that the company’s disclosure exceeds that of many of its peers, but wants it to go a step further. In quarter two, Wellington engaged with a coal company to discuss their environmental and social initiatives, including the impact on compensation. The company explained that, since the last engagement with them, it has named two new environmental experts to the board. Additionally, the company has begun to tie its CEO’s compensation and that of his six direct reports to environmental and social performance. Wellington questioned whether the two new directors with an environmental background can truly be considered experts, and encouraged the company to find individuals with deeper expertise going forward. It was also requested to publish plans for addressing climate change and operating in a carbon-constrained environment. Wellington also met with an energy firm who, following a hazardous material spill in one of their operating communities, faced public backlash, increased shareholder scrutiny, and hundreds of millions of dollars in associated clean-up and legal settlement costs. It was recently announced that the CEO will be receiving a salary increase, a move that has garnered the attention of business media publications in the wake of last year’s spill and the concomitant penalty to the CEO’s total compensation. Wellington will continue to engage with the company to better understand decisions around environmental management and encourage improved practices so as to avoid future incidents. 5 267 Appendix 3 Investor Living Wage letters, by category: 1) Accredited employers: 21 July 2014 Dear , We are writing to you about the UK Living Wage. We would like to congratulate you on becoming an accredited Living Wage employer. We wish to invest in socially sustainable companies that focus on long-term as well as short- term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. With your accreditation, we feel assured that X company understands the case for the Living Wage, and we see your decision to provide a Living Wage to all X company employees and contracted staff as an indicator of the firm’s commitment to responsible business practice. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust Mr Jeff Hayes Chair Trust for London 268 Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Mr Bill Seddon Chief Executive Central Finance Board of the Methodist Church Ms Catherine Howarth Chief Executive ShareAction 269 2) Engaged, not paying LW, not a particularly significant cost 08 July 2014 Dear , We are writing to you about the UK Living Wage. We wish to invest in socially sustainable companies that focus on long-term as well as short-term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. The Living Wage is the minimum hourly rate necessary for housing, food and other basic needs. Within London, that rate is currently £8.80 per hour; outside London, it is £7.65 per hour. Accredited Living Wage employers ensure all their own staff and those of their on-site contractors receive at least the Living Wage. We appreciate that X company has engaged with the issue of the Living Wage. For large firms, the implementation of Living Wage standards across UK operations is rapidly becoming a key marker of commitment to responsible business practice. We would like to see X company become an accredited Living Wage employer in the coming year. Please let us know about the company’s latest thinking and plans regarding the Living Wage and any progress being made towards full implementation of the standards. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust 270 Mr Jeff Hayes Chair Trust for London Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Mr Bill Seddon Chief Executive Central Finance Board of the Methodist Church Ms Catherine Howarth Chief Executive ShareAction 271 3) Engaged, not paying LW, significant cost: 08 July 2014 Dear , We are writing to you about the UK Living Wage. We wish to invest in socially sustainable companies that focus on long-term as well as short-term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. The Living Wage is the minimum hourly rate necessary for housing, food and other basic needs. Within London, that rate is currently £8.80 per hour; outside London, it is £7.65 per hour. Accredited Living Wage employers ensure all their own staff and those of their on-site contractors receive at least the Living Wage. We understand and appreciate that X company has engaged with the issue of the Living Wage. We would hope to see X company become an accredited Living Wage employer in the coming year. Please let us know about the company’s latest thinking and plans regarding the Living Wage and any progress being made towards full implementation of the standards. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust Mr Jeff Hayes Chair Trust for London 272 Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Mr Bill Seddon Chief Executive Central Finance Board of the Methodist Church Ms Catherine Howarth Chief Executive ShareAction 273 4) Non-engaged, not paying LW, not a significant cost: 08 July 2014 Dear , We are writing to you about the UK Living Wage. We wish to invest in socially sustainable companies that focus on long-term as well as short-term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. The Living Wage is the minimum hourly rate necessary for housing, food and other basic needs. Within London, that rate is currently £8.80 per hour; outside London, it is £7.65 per hour. Accredited Living Wage employers ensure all their own staff and those of their on-site contractors receive at least the Living Wage. For large firms, the implementation of Living Wage standards across UK operations is rapidly becoming a key marker of commitment to responsible business practice. We would like to see X company become an accredited Living Wage employer. Please let us know about the company’s thinking and plans regarding the Living Wage and any progress being made on the ground to ensure staff and contractors are paid at this rate. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust 274 Mr Jeff Hayes Chair Trust for London Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Mr Bill Seddon Chief Executive Central Finance Board of the Methodist Church Ms Catherine Howarth Chief Executive ShareAction 275 5) Non-engaged, not paying LW, significant cost 21 July 2014 Dear , We are writing to you about the UK Living Wage. We wish to invest in socially sustainable companies that focus on long-term as well as short-term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. The Living Wage is the minimum hourly rate necessary for housing, food and other basic needs. Within London, that rate is currently £8.80 per hour; outside London, it is £7.65 per hour. Accredited Living Wage employers ensure all their own staff and those of their on-site contractors receive at least the Living Wage. For large firms, the implementation of Living Wage standards across UK operations is becoming a key marker of commitment to responsible business practice. We would like to see X company become an accredited Living Wage employer and certainly to make progress in moving employees onto the Living Wage in the year ahead. Please let us know about the company’s thinking and plans regarding the Living Wage and any progress being made on the ground to ensure staff are paid at this rate. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust 276 Mr Jeff Hayes Chair Trust for London Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Mr Bill Seddon Chief Executive Central Finance Board of the Methodist Church Ms Catherine Howarth Chief Executive ShareAction 277 6) Engaged, pay LW to direct staff not contractors 21 July 2014 Dear , We are writing to you about the UK Living Wage. We wish to invest in socially sustainable companies that focus on long-term as well as short-term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. The Living Wage is the minimum hourly rate necessary for housing, food and other basic needs. Within London, that rate is currently £8.80 per hour; outside London, it is £7.65 per hour. Accredited Living Wage employers ensure all their own staff and those of their on-site contractors receive at least the Living Wage. We appreciate that X company acknowledges the importance of the Living Wage and that all of your employees are paid at least the Living Wage. We support the standard set by the Living Wage Foundation, namely that contractors’ staff working on your premises should also be paid no less than the Living Wage. Thus, we encourage you to extend Living Wage rates to staff of contractors in the coming year. The Living Wage Foundation can provide considerable support with the practicalities of implementing Living Wage standards through contractors. Please let us know about the company’s thinking and plans regarding the extension of Living Wages in this way. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust 278 Mr Jeff Hayes Chair Trust for London Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Mr Bill Seddon Chief Executive Central Finance Board of the Methodist Church Ms Catherine Howarth Chief Executive ShareAction 279 7) Pay partially in operations 21 July 2014 Dear , We are writing to you about the UK Living Wage. We wish to invest in socially sustainable companies that focus on long-term as well as short-term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. The Living Wage is the minimum hourly rate necessary for housing, food and other basic needs. Within London, that rate is currently £8.80 per hour; outside London, it is £7.65 per hour. Accredited Living Wage employers ensure all their own staff and those of their on-site contractors receive at least the Living Wage. We appreciate that X company acknowledges the importance of the Living Wage and has been working towards its implementation. As investors, we encourage this process of extending the Living Wage rates across the entirety of company operations, to both directly employed and contracted staff. If you could let us know your progress on this as it goes forward. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust Mr Jeff Hayes Chair Trust for London 280 Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Mr Bill Seddon Chief Executive Central Finance Board of the Methodist Church Ms Catherine Howarth Chief Executive ShareAction 281 8) Pay LW, non-accredited 02 July 2014 Dear Mr Bailey, We are writing to you about the UK Living Wage and wish to congratulate you on becoming a Living Wage employer. We wish to invest in socially sustainable companies that focus on long-term as well as short-term success. Significant evidence has accrued that the Living Wage helps to ensure a company’s continuing productivity whilst earning the loyalty of staff at all levels and external stakeholders. As investors, we recommend formal accreditation via the Living Wage Foundation as it gives us a simple assurance that X company is Living Wage compliant. A growing number of FTSE 100 employers have recently applied for accreditation. If you could, please respond with the details of your thinking on accreditation. Please respond to Lisa Nathan, Research and Engagement Officer, [email protected], ShareAction, 16 Crucifix Lane, SE1 3JW. Signatories: Cllr Paul Rooney Convener Strathclyde Pension Fund Mr David Adkins Chief Investment Officer The Pensions Trust Cllr Richard Greening Chair London Borough of Islington Pension Fund Ms Helen Cadbury Chair Barrow Cadbury Trust Mr Jeff Hayes Chair Trust for London 282 Mr Nick Perks Trust Secretary Joseph Rowntree Charitable Trust Mr John Ellis Assembly Moderator United Reformed Church Mr Julian Corner Chief Executive LankellyChase Foundation Ms Catherine Howarth Chief Executive ShareAction 283