Essex Pension Fund Annual Report & Accounts 2018/19 Contents Introduction and Overview • Chairman’s Foreword .......................................................................................................................... 4 • Officer Introduction ............................................................................................................................. 6 • Access Annual Report .......................................................................................................................... 9 • Fund Trends and Financial Summary ................................................................................................. 14 • Risk Management and Internal Controls............................................................................................. 16 Section 1: Governance Arrangements • The Essex Pension Fund Strategy Board (The Board) .......................................................................... 20 • Essex Pension Fund Investment Steering Committee (ISC) ................................................................. 21 • Essex Pension Fund Advisory Board (PAB) ......................................................................................... 22 • Fund Management Structure and other Professional Organisations ................................................... 23 • Business Plan 2018/19 and 2019/20 ............................................................................................... 25 Section 2: Investments • Investment Strategy Overview ........................................................................................................... 32 • Investment Decisions ........................................................................................................................ 34 • Investment Performance 2018/19 ..................................................................................................... 37 Section 3: Administration • Membership Summary ...................................................................................................................... 42 • Key Service Standards for Scheme Members ...................................................................................... 42 • Scheme Details ................................................................................................................................. 43 • Participating Employers of the Fund .................................................................................................. 45 Section 4: Scheme Actuary • Statement by Consulting Actuary 2016 Actuarial Valuation ................................................................ 56 • Essex Pension Fund Contribution Rates Schedule – Actuarial Valuation 2016 .................................... 57 • Addendum to Rates and Adjustment Certificate ................................................................................. 88 • Barnett Waddingham Final Comments ............................................................................................... 93 Section 5: Annual Statement of Accounts • Responsibilities for the Statement of Accounts ................................................................................. 96 • Fund Account .................................................................................................................................... 97 • Net Asset Statement .......................................................................................................................... 98 • Description of the Fund ..................................................................................................................... 99 • Notes to the Accounts .....................................................................................................................101 • Statement by External Auditors .......................................................................................................148 Section 6: Other Information • Investment Strategy Statement ........................................................................................................150 • Funding Strategy Statement ............................................................................................................193 • Governance Policy and Compliance Statement ................................................................................217 • Essex Pension Fund Advisory Board Annual Report ..........................................................................240 • Administration Strategy ...................................................................................................................247 • LGPS Knowledge and Skills Training Strategy ...................................................................................268 • Communications Policy ..................................................................................................................279 • Glossary .......................................................................................................................................286 • Contact Points .................................................................................................................................290 Introduction and overview Chairman’s foreword At a time when Fund’s governance and provide the foundation so much of the for the annual business plan (see section 1). pension landscape The revised objectives also formed the basis is undergoing of the subsequent review of the Fund’s risk register. Its completion has seen a reduction in wholescale change, the number of overall risks from 83 to 46 which it is pleasing to is the consequence of risks being consolidated be able to report and duplication avoided. The scoring of each both good progress risk continues to be reviewed on an ongoing against our core objectives and that basis. The final part of this process will see the once again the Fund’s efforts have been Fund’s quarterly scorecard reviewed during externally recognised. 2019/20 in line with the revised objectives and risks. Governance Since 2010, the Fund has formalised a Funding number of objectives covering five key The relative values of the Fund’s assets and areas: Governance, Investment, Funding, liabilities are often expressed as funding level Administration and Communications and during percentage, and the Fund’s objectives refer to 2018 a review of these was undertaken. Whilst both maximising the returns from investment many original objectives remain appropriate the within reasonable risk parameters and the opportunity was taken to update and expand prudent setting of employer contributions that where required. The revised objectives are aim to achieve a fully funded ongoing position shown in full at section 6 and the substantive in the timescales identified in the Funding changes include: Strategy. • a new objective making explicit reference Funding levels alter from time to time, and can to the Fund’s compliance with LGPS be derived in different ways; however, results Regulations, wider legislation and published in the last year indicate that Essex acknowledgement of the role of the continues to make progress in this critical area. Pension Regulator in the LGPS; • in recognition of the increasing complexity 31 March 2016 within scheme administration, two new The last full triennial valuation was in 2016 at objectives covering the establishment of which point the funding level was 89%. The performance levels for, and partnership triennial valuations of all LGPS Funds in England working between, both the Fund and its & Wales are subsequently reviewed by the employers; Government Actuary. In September 2018, the • recognition of investment pooling with the findings of the latest review were published. management of the Fund’s assets; This ranked as Essex as 32nd out of 90 funds, • explicit reference to prudence in setting up from 69th at the 2013 review. employer contributions; and • reference to regulatory compliance in 31 March 2017 relation to data protection. In the intervening years between triennial valuations, the Fund commissions its own These objectives, agreed by the Pension Interim Review. The Review as at 31 March 2017 Strategy Board, are the cornerstone of the showed the funding level had risen to 93%. 4 Pension Fund Annual Report 2018/19 31 March 2018 Given the passive mandate placed with UBS The Interim Review as at 31 March 2018 Asset Management in early 2018, by the end of showed the funding level had risen to 94%. 2018/19 Essex had just over half of the asset portfolio under pool governance. Fee savings 31 March 2019 realised in 2018/19 exceeded £2m. The chart During the 2018/19 year the value of the below summarises Essex’s pooling progress as Fund’s assets rose from £6.5bn to £7.0bn at 31 March. – which underpinned an annual investment performance of 8.5% compared to a benchmark of 5.6%. This continues an established Fund trend of outperformance. The results of the 2019 Valuation are expected in autumn 2019 and will include an update on the funding level. Active Asset Pooling Passive Alongside the ten other Funds within the ACCESS, Essex continues to progress Outside the Pool the pooling of investment management arrangements. Following last year’s successful collective procurement of, and migration to UBS as passive manager, 2018/19 saw significant Further detail on the ACCESS Pool, including the developments for actively managed listed ACCESS Support Unit which is hosted by Essex, assets. can be found on page 9. By February 2019,