Annual Report 2018/2019 yourpensionservice.org.uk Contents
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A Foreword by the Chair of the Pension Fund Committee 4 B Management and financial performance 8 C Governance of the Fund 10 D Administration of the Fund 12 E Knowledge and skills framework 16 F Investment policy and performance 18 G Asset pools 34 H Accounts of the Fund for the year ended 31 March 2019 36 I Lancashire Local Pension Board annual report 82 J Actuarial valuation 86 K Contacts 102 L Glossary 103
Appendices
1 Scheme employers with active members as at 31 March 2019 2 Governance policy statement 3 Annual Administration report 4 Communication policy statement 5 Pensions administration strategy statement 6 Funding strategy statement 7 Investment strategy statement
2 Lancashire County Pension Fund Annual Report 2018/19 3 A Foreword by County Councillor Eddie Pope, Chair of the Pension Fund Committee
I am pleased to report that the • Along with the Head of Fund I have Guild Investments - Forth Ports Group - Endeavour Vision - administration service is now meeting most become a member of the Local Infrastructure Infrastructure Private equity of the key performance indicators as can Authority Pension Fund Forum (LAPFF) Guild Investments Limited is a private Forth Ports is the third largest Ports Group Endeavour Vision has invested in medical be seen on page 11 of this annual report. a collaborative shareholder group limited company established as a vehicle in the UK, with a diverse operational and technology for over 10 years as they This successful turnaround is due to the which aims to promote good corporate to hold infrastructure investments and in port-centric logistic business model across recognised an opportunity to invest in collaborative working between LPP and governance and responsibility by which LPPI Infrastructure Investments LP Tilbury in the south east of England and devices that can improve the overall members of the Pension Fund committee companies. This has enabled direct has a controlling interest. several Scottish ports. Its strategy is focused standard of care, reduce healthcare costs and Local Pension Board. It is also due engagement with companies in which on the delivery of efficient and low carbon and have a life-changing impact on patients to the hard work and commitment of LAPFF members have investments. Guild Investments owns six wind farm sites supply chain solutions. This investment was around the world. Welcome to the 2018/19 the staff who work within the Pension across Portugal, a growing global source of Investment made via the GLIL Infrastructure platform. Annual Report of the Administration service. renewable energy which reduces carbon To date, their Endeavour Medtech Growth The value of the Fund’s net assets at emission intensity. Currently undergoing a project to transform Fund has invested in 12 medtech companies Lancashire County Pension Some of the highlights of the year are as 31 March 2019 was £8,410m, up from an old power station in Tilbury to extend with a total investment value of over EUR Fund. The year has seen the follows: Portugal is an attractive location for wind £7,621m at 31 March 2018. farm installations, having a windy terrain, the port. Not only is this initiative creating 115 million. Every company they invest in number of scheme members • Delivering an 11.7% return on assets which The Fund uses Local Pensions Partnership a stable feed-in-tariff regime and the jobs within the area but the promotion and must meet their strict criteria, meaning that continuing to increase with outperformed the Lancashire benchmark Investment Ltd (LPP I) to manage all of its support of local communities. This protection of wildlife is paramount within the device must be considered ‘best-in- total members now being of 8.0% and resulted in the value of investment assets. LPP I initially undertook investment enables us to partner with a the scope of the project, including the class’ in terms of patient safety and efficacy the fund, at 31 March 2019, increasing 176,476 an increase of 4,402 investments on behalf of Lancashire County top tier renewable energy operator who building of a 12,000 strong water vole park. and offer superior clinical benefits, both to to £8.4bn, bringing the Scheme closer in the year. We are now in our Pension Fund and the LPFA to create is a market leader in renewable energy Further regeneration projects are underway doctors and patients. to being fully funded and placing third year of our partnership a larger pool which is jointly invested to electricity, enjoying technical and local in Scotland. Lancashire at the top of the 2018/19 arrangement with the ensure greater reductions in management expertise support. local authority fund league table for total costs. In 2018/19 Royal County of Local Pension Partnership fund performance. This league table is Guild Investments also actively contribute Berkshire Pension Fund also invested in (LPP) who are providing published by Pensions and Investments to protecting the endangered species LPP I, therefore the value of the pool has both administration and Research Consultants Ltd (PIRC) and the Iberian Wolf, through formation and increased to approximately £17bn at 31 investment services to the comprises 64 local government pension membership of the Iberian Wolf Habitat March 2019. Fund. The investment side of funds with a combined value of £193bn. Conservation Association. This organisation One of the aims of the pooling was founded in 2006 through constituent their business has performed • The continued development of the arrangements is value for money. As part of members of Guild Investments. well as noted below, however, pooling of investments via Local Pensions this LPP reported to Government that the Partnership saw a new diversifying it has been a challenging arrangement is on track to make investment strategies vehicle launch in September. year for our administration cost savings. Other benefits from the pool It is anticipated that the final vehicle service as LPP went live with include the access to investments and covering property will be launched later a new operating model for portfolio diversification. in 2019. the business in April 2018. Further details on investment performance is • Responsible investment has continued to Unfortunately this change on page 18 of this report and some examples be an important issue for the committee. wasn’t implemented as of Fund investments are set out below. The Responsible Investment Working successfully as anticipated Group reviewed the Climate Change and there were failures in policy, and is working closely with the services to both employers London Pension Fund Authority (LPFA) and members. and LPP to ensure we support the most appropriate investments within this area.
Wind Farm, Portugal Investment in Forth Ports Group
4 Lancashire County Pension Fund Annual Report 2018/19 5 A
Friargate Court, Preston – Park Hotel East Cliff, Preston Administration Real estate - Real estate During the year the Fund’s administration Friargate Court is newly built exemplary The Fund acquired this landmark property, service, provided by LPP processed around student accommodation providing future originally built in 1883 as a luxury hotel 32,637 items of work (ranging from changes generations of those electing to study and most recently serving as offices to of address to the calculation of pension at the University of Central Lancashire Lancashire County Council. This investment benefits). As noted above this has been a with modern, stylish and safe lodgings to sits within the real estate portfolio of the challenging year for this area of the business enhance their experience of university life. Fund and will be brought back into use as and we have been working hard to improve En-suite bathrooms, Wi-Fi, 24 hour security a 4 star hotel following a programme of the service received by both members and and a range of utilities make this property a construction and refurbishment. employers in the Fund. popular choice. County Councillor Eddie Pope Chair of the Pension Fund Committee
Artist’s impression of restored Friargateand converted Court, Park Preston Hotel An artist’s impression of the development at Park Hotel, East Cliff
6 Lancashire County Pension Fund Annual Report 2018/19 7 B Management and Financial performance financial performance of the Fund
Administering authority Scheme administrators Custodian to the Fund The Fund asset value increased by investment performance, contribution funding level was a significant improvement Lancashire County Council Local Pensions Partnership Limited Northern Trust £788.9m from £7,621.2m at 31 March income and Fund expenditure against the when compared to 78% in 2013. 2019/20 2018 to £8,410.1m as at 31 March budget, with committee reporting on a is a valuation year and the Fund is expected Pension Fund Committee Head of Fund Independent investment 2019 and delivered an 11.7% return on quarterly basis. The most significant budget to again be closer to fully funded. The new Lancashire County Council A Leech advisors investment assets over the twelve months, variance for the year to 31 March 2019 arose valuation will set the contribution rates for outperforming the Lancashire benchmark due to the accounting treatment adopted employers within the Fund for at least the committee members A Devitt Chief Executive and of 8.0% and placing the Fund at the top of in the prior financial year for up-front three years commencing 1 April 2020. County Councillor J Burrows E Lambert Director of Resources the 2018/19 Local Authority Fund league deficit and future service rate contributions Employer contribution rates in 2018/19 County Councillor S Clarke table for total fund performance, from a received from some employers. The budget A Ridgwell AVC providers range from 0.0% to 28.0% of pension pay County Councillor L Collinge* population of 64 local government pension assumed this early receipt of income would and are dependent on the assumptions Equitable Life funds with a combined value of £193bn. be apportioned over the associated time County Councillor G Dowding External auditor to the Fund applied by the actuary at the date of Prudential Benefits payable by the Fund and transfers period but, following review by external valuation. The Fund collects contributions County Councillor C Edwards Grant Thornton LLP out of the Fund exceed the value of auditors, the full amount of up-front income by direct debit on a monthly basis and does County Councillor K Ellard Legal advisors contribution income and transfers in to was recognised in the 2017/18 fund account not have a significant issue in respect of Pooled investments manager with a corresponding shortfall in the current County Councillor J Fillis** Addleshaw Goddard the Fund on a regular basis. This net cash timeliness of receipt of contribution income. Local Pensions Partnership Investments Ltd outflow from transactions with members, year. There was no net impact on the cash No interest on overdue contributions has County Councillor T Martin Allen and Overy flow of the Fund as this was an accounting Non-pooled investment together with management expenses, is been levied during the year. County Councillor J Mein Clifford Chance funded from investment income. adjustment only. managers Further information on the 2016 valuation County Councillor E Pope (Chair) DWF A one year budget is prepared for the Fund The last triennial valuation was carried out can be found in section J of this annual County Councillor A Riggott Local Pensions Partnership Investments Ltd Eversheds on an annual basis and both officers and the by Mercer, the Fund’s independent actuary, report. as at 31 March 2016 and the resultant 90% County Councillor A Schofield (Deputy Knight Frank LLP Lancashire County Council Pension Fund Committee closely monitor Chair) BNP Paribas MacFarlanes County Councillor K Snape*** Actuary Taylor Wessing County Councillor A Snowden Mercer Pinsent Masons *Appointed 23 May 2019 Independent property valuer **Until 24 May 2018 Lancashire Local Pension Board Avison Young Partnership *** 24 May 2018 to 23 May 2019 Fund account 2018/19 2017/18 2016/17 Co-opted representatives W Bourne (Chair) Performance measurement £m £m £m P Crewe – Trade union C Gibson Northern Trust J Tattersall – Trade union K Haigh Net additions / (withdrawls) from dealing with members (109.8) 113.7 (20.4) Governance and research Councillor D Borrow – City and Borough B Harvey* consultants councils Y Moult Management expenses (76.3) (62.4) (70.4) Pension and Investment Research Councillor I Moran – City and Borough T Pounder Consultants Net (outflow) / inflow before investment returns (186.1) 51.3 (90.8) councils S Thompson Councillor M Smith – Blackpool Council C Wakeford (County Councillor) Bankers Investment income 193.5 138.7 109.9 Councillor R Whittle – Blackburn with K Wallbank** Lloyds Bank plc Darwen Council Change in market value of investments 781.5 221.9 1,154.0 *Until May 2019 Natwest Bank plc J Eastham – Further / Higher education **Appointed October 2019 Svenska Handelsbanken Net increase / decrease in the Fund 788.9 411.9 1,173.1 For contact details refer to page 102
8 Lancashire County Pension Fund Annual Report 2018/19 9 C
Lancashire County Pension Fund Governance Governance Compliance Statement - January 2018
A. Structure (a) the Management of the administration of benefits and strategic management of fund assets clearly rests with the of the Fund main committee established by the appointing Council (b) that representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner Partial (see and deferred members) are members of either the main or secondary committee established to underpin the work of Note 1) the main committee (1) (c) that where a secondary committee or panel has been established, the structure ensures effective communication Lancashire County Pension Fund across both levels. (d) that where a secondary committee or panel has been established, at least one seat on the main committee is Partial (see Governance Policy Statement allocated for a member from the secondary committee or panel. Note 3) B. Representation (a) that all key stakeholders are afforded the opportunity to be represented within the main or secondary committee Partial (see structure. (1) Notes 1 While the Pension Fund is not technically Comprehensive terms of reference have Government (formerly the Department These include: and 2) a separate legal entity, it does have its own been established for all areas of governance for Communities and Local Government, (i) employing authorities (including non-scheme employers, e.g. admitted bodies) specific governance arrangements and of pension fund activities including the DCLG) and the requirement to complete (ii) scheme members (including deferred and pensioner scheme members) controls which sit within Lancashire County Pension Fund Committee, the Investment a Governance Compliance Statement (iii) independent professional observers (2) Council’s overall governance framework. Panel, the Lancashire Local Pension Board for all areas of governance of pension (iv) expert advisers (on an ad hoc basis) and issues delegated to the Head of the fund activities. Under regulation 55 of the LGPS Lancashire County Pension Fund. C. Selection (a) that committee or panel members are made fully aware of the status, role and function they are required to Regulations 2013, all Local Government The Fund’s Governance Compliance and Role of Lay perform on either a main or secondary committee. (It is the role of the administering authority to make places Pension Scheme (LGPS) Funds in England The Pension Fund Committee has Statement is shown on the following page, Members available for lay members and for the groups to nominate the representatives. The lay members are not there to and Wales are required to publish a considered the governance arrangements and the Governance Policy Statement is represent their own local, political or private interest but owe a duty of care to their beneficiaries and are required to Governance Policy Statement setting out relating to the administration and strategic included as Appendix 2 to this report. act in their best interests at all times). whether the authority delegates its functions, management of Fund assets and liabilities in D. Voting (a) the policy of individual administering authorities on voting rights is clear and transparent, including the or part of its functions to a committee, a sub- the light of guidance issued by the Ministry justification for not extending voting rights to each body or group represented on main LGPS committees. committee or an officer of the authority. of Housing, Communities and Local E. Training/ (a) that in relation to the way in which statutory and related decisions are taken by the administering authority, Facility time/ there is a clear policy on training, facility time and reimbursement of expenses in respect of members involved in the Expenses decision-making process. (b) that where such a policy exists, it applies equally to all members of committees, sub-committees, advisory panels or any other form of secondary forum. F. Meetings - (a) that an administering authority’s main committee or committees meet at least quarterly. Frequency (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 sit. (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. G. Access (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. H. Scope (a) that administering authorities have taken steps to bring wider scheme issues within the scope of their governance arrangements. I. Publicity (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.
Notes - Reasons for partial compliance 2) Guidance envisaged that an independent professional observer could be invited to participate in governance arrangements to enhance the 1) Unitary councils, district councils and further and higher education experience, continuity, knowledge, impartiality and performance of employers, are represented. Other admitted bodies only represent committees or panels which would improve the public perception that 9% of contributors to the Fund and are therefore not represented. high standards of governance are a reality and not just an aspiration. However, all employers receive a full annual report and are alerted to This role is currently performed by the Fund’s independent advisers and important events. Although employee representatives, i.e. trade unions, officers and it is not apparent what added value such an appointment do not formally represent deferred and pensioner scheme members, it would bring. is accepted that representation is available to deferred and pensioners members via this route where necessary and/or appropriate. In addition 3) The members of the investment panel are not voting members on the the interests of all scheme members and employers are specifically committee. However, all the panel members attend the committee represented in the composition of the Local Pension Board. meetings and are able to contribute to any discussions. 10 Lancashire County Pension Fund Annual Report 2018/19 11 D Administration of the Fund
Background to Lancashire County Pension The improvements from Q3 are demonstrated in the table below: Fund membership 31 March 2018 31 March 2019 Performance Fund and the Local Government Pension The Pension Fund Committee receives regular reports on the Q1 Q2 Q3 Q4 Annual Active scheme members Scheme administration of the Fund ensuring that best practice standards are Performance Lancashire County Council 25,126 25,721 satisfied and met and to satisfy itself and justify to all stakeholders, The Local Government Pension Scheme is a statutory public sector 73% 86% 90% 93% 87% against SLA including employers that the Fund is being run on an efficient and pension scheme which operates on a “defined benefit basis”. Other employers 26,220 27,422 effective basis. Lancashire County Council as “Administering Authority” is required Complaints 49 45 66 48 208 Total* 51,346 53,143 by law to administer the scheme within the geographical area of Specific service level standards and corresponding service level Lancashire. Compliments 4 3 5 5 17 Pensioners targets have been agreed between the Fund and the Local Pensions During the year to 31 March 2019, 32,637 individual calculations Partnership and an Annual Administration Report is presented to Pension administration services are provided to Lancashire County Lancashire County Council 23,722 24,692 the Pension Fund Committee. A copy of the report for the year to 31 Pension Fund by the Local Pensions Partnership (LPP). and enquiries were completed, of which 28,414 met the performance standard; an overall performance of 87%. Other employers 23,723 24,651 March 2019 is included as Appendix 3 to this annual report. Review of the Year The next phase of the service improvement programme will include Total** 47,445 49,343 Customer Service enhancements to the member and employer experience through LPP introduced the new target operating model for the pension Each year the service’s dedicated engagement team undertakes new technologies and digital solutions, improved team-learning, Deferred members administration business which went live at the beginning of April a variety of events, courses and presentations. In addition the improved reporting, customer satisfaction surveys and embedding 2018, following months of planning and significant changes to the Lancashire County Council 37,410 37,691 team visits scheme employers to maintain and improve working way LPP manage our services. best practice. Other employers 35,873 36,299 relationships. The engagement team also undertakes annual pension This new operating model created three main service hubs: Membership and employers surgeries and pension drop-in sessions as well as facilitating an Total* 73,283 73,990 annual employer conference. • Member services The Scheme is administered on behalf of over 400 organisations • Engagement; and including local authorities, further and higher education colleges, Total membership 172,074 176,476 The annual employer conference was held on 13 November 2018 • Business development. voluntary and charitable organisations and private contractors at the Hallmark Hotel in Leyland with over 100 employers in undertaking a local authority function following outsourcing to the attendance. Presentations included the role of a Local Pension In particular, the new operating model was designed to provide *The number of active scheme members at 31 March 2019 includes 5,089 Board, amendment regulations update, an overview of the ill health private sector. The Local Government Pension Scheme is open to 2 pending leavers who are accounted for as a deferred member for the greater resilience and ultimately give employers and members an process and an update on the LPP administration service. Guest main types of employers, ‘Scheduled Bodies’ and ‘Admitted Bodies’. purpose of this report. improved service and experience. speakers attended from the Pensions Ombudsman and the Pensions As a result of the volume of change at the start of the new fiscal year, Scheduled bodies listed in Part 1 of Schedule 2 of the LGPS ** The number of pensioner members of the Fund has continued to rise Regulator. The service also hosted an employer forum in April in common with other local government pension funds, reflecting the there were some initial challenges and dips in productivity which regulations must participate in the scheme. Those scheduled bodies 2018 on behalf of the fund with over 40 finance professionals in increasing maturity of the Fund. were more significant than originally anticipated. listed in Part 2 of Schedule 2 are eligible to participate. attendance. Productivity has subsequently increased. By Q3 2018, remedial Admitted bodies participate through a written contractual A dedicated contact centre, AskPensions, provides the first point of agreement and the majority of cases are established when New pensioners during the year to 31 March 2019 are analysed in the action was taken to address backlogs and stabilise the position, following table. contact for members and employers. The contact centre has a target including the implementation of an engagement programme to help outsourcing a service or function, where the new contractor wishes to answer 90% of calls received. Between 1 April 2018 and 31 March clients understand the change and the remedial action taken. to provide continued LGPS membership. Membership of the LGPS 2019, 39,303 calls were received and 87% of them were answered. is automatic although employees are able to opt-out of membership Pensioners at 1 April 2018 47,445 In January 2019 the contact centre survey was launched and of if they choose. However, employees are re-enrolled every 3 years Normal retirements 507 under the government’s auto-enrolment regulations. those eligible to be surveyed and who agreed to take part, 92.46% Early retirements 506 indicated they were satisfied with our service, providing us with an average score of 4.67 out of 5. Dependants 351 During the year to 31 March 2019, the service received 17 Late or flexible retirements 260 compliments (18 in the previous year), relating to the helpful, Ill health retirements 138 prompt and professional service provided by the staff within the pensions administration team. During the same period, 208 Retirements through redundancy 136 complaints were received (49 in the previous year). The complaints Pensioners at 31 March 2019 49,343 in general related to delays in processing benefits. It is worth noting that this was at times due to pending information from the employer or previous scheme provider.
12 Lancashire County Pension Fund Annual Report 2018/19 13 D
Legislative Changes Appeals Amendments to the Scheme’s rules took effect during 2018. These Fund members who disagree with decisions taken by their employer include allowing members aged between 55 and 60 who left before or administering authority may appeal using the Internal Dispute 1 April 2014 to draw their deferred benefits at a reduced rate without Resolution Procedure (IDRP) under the Local Government Pension needing their former employer’s consent. Scheme rules. Service Developments The IDRP is a formal appeal procedure which contains two stages. The first stage allows the person to ask the body who originally made During the year the Fund’s administration service processed 32,637 the decision to review it, i.e. either the employer or the administering items of work. authority. The second stage allows the person, if they are not Working closely with employers helps to enhance the quality and satisfied with the outcome at the first stage, to ask the Appeals timeliness of data meaning that Annual Benefit Statements for the Officer appointed by the administering authority to review the year ended 31 March 2019 were published in line with the statutory disagreement. deadline of 31 August 2019. Charges and value for money Pension surgeries are hosted throughout the county on an annual basis from October through to March. The sessions help members The administration business charges the Fund on a per member to understand their annual benefit statements and members can basis as set out in Schedule 2 ‘Principles for Financial Decision also be helped through the process of registering to use the online Making’ of the Local Pensions Partnership Shareholder Agreement. self-service portal. The Head of Fund is advised of the proposed charges for the Additionally, 28 pre-retirement presentations and 21 scheme basic upcoming financial year in writing and these charges are reviewed for presentations have been delivered during the year. value for money and consistency with market rates by the Pension Fund Committee and Head of Fund on an ongoing basis. Online Services The shareholder agreement principles include a requirement for My Pension Online is an online facility allowing members to view any decision made by the Local Pensions Partnership to ensure long their details and also securely update any changes in contact details. term value for money, evidenced by savings, efficiencies or service improvements when compared to the arrangements and costs of the Members who are registered can run various pension estimates combined predecessor organisations. Where a new service is carried assisting with planning for retirement. Members can also view their out by the partnership then comparison should be to wider market annual benefit statement via My Pension Online. benchmarks. Other benefits of the system include: allowing members to view their nominated beneficiaries; access to a host of forms and guides Other information and also allows the administration service to communicate with For further information relating to the administration of the registered members via email. scheme please refer to the Communication Policy Statement Currently around 33% of Lancashire County Pension Fund members and the Pensions Administration Strategy Statement included as are registered online. Appendices 4 and 5 respectively.
Westmill Solar & Wind Farm
14 Lancashire County Pension Fund Annual Report 2018/19 15 E Knowledge & skills framework
There is a requirement for all those involved 4. pensions accounting and auditing Committee and Lancashire Local Pension Date Subject Venue Attendees in the management and oversight of public standards; Board. PFC LLPB sector pension funds (whether members 5. financial services procurement and The policy provides a framework for or officers) to ensure they achieve the relationship management; ensuring members receive appropriate 10 May 2018 ESG and Sustainable Investments for Pension Funds Conference London 1 0 level of knowledge and skill necessary for support (both collectively and 21/23 May 2018 Local Authority Conference 2018 Gloucestershire 2 0 performing their duties and responsibilities 6. investment performance and risk management; individually) for gaining the knowledge effectively. and understanding they need. Training 22 May 2018 Workshop on Credit and Infrastructure County Hall, Preston. 10 4 7. financial markets and product is responsive to the learning needs of 8 June 2018 Pre committee briefing – the role of the Lancashire Local Pension Board. County Hall, Preston 15 0 knowledge; individuals in their different roles and CIPFA pensions finance 28 June 2018 Workshop on LCPF Annual Report and accounts County Hall, Preston 9 2 8. actuarial methods, standards and members have regular opportunities to knowledge and skills practices. build skills and knowledge through a range 16/18 July 2018 LAPFF Investment Seminar Hertfordshire 1 0 framework of methods and approaches including: 6/7 Sept 2018 LGC Investment Seminar Newport, South Wales 2 0 The Chartered Institute of Public Finance Training approach • in-house training from officers and/or 14 Sept 2018 Pre committee briefing – Media report on LGPS investment in shale gas extraction. County Hall, Preston 16 0 and Accountancy (CIPFA) first published a Since its adoption of the CIPFA Code of external advisors code of practice on public sector pensions Practice in February 2012 the Pension Fund 23/24 Sept 2018 Pension Trustees Circle Seminar York 1 0 • external training events by recognised finance knowledge and skills in October Committee has reviewed the Fund’s training bodies 26 Sept 2018 Workshop on ‘Analysing the Macro Backdrop for Investing’ County Hall, Preston 7 2 2011 which was revised in 2013 to reflect the approach at regular intervals. The current provisions of the Public Service Pensions training policy for the Fund is aimed at • attendance at external seminars and 26 Sept 2018 Introduction to the Local Government Pension Scheme London 1 1 Act 2013 and remains a definitive guide to ensuring the Fund is overseen by individuals conferences 12 Oct 2018 LGPS Autumn Seminar for Pension Board members Liverpool 0 2 expected standards. who: • practical support and guidance through 17/19 Oct 2018 PLSA Annual Conference and Exhibition. Liverpool 2 0 The Code of Practice works in conjunction • have appropriate levels of knowledge recommended reading and targeted with detailed knowledge and skills and skill; information 6 Nov 2018 Workshop on the Actuarial Valuation County Hall, Preston 8 5 frameworks (KSF) also published by • understand and comply with legislative • key documents/learning materials made 15 Nov 2018 Ministry for Housing, Communities and Local Government and Local Government London 1 0 CIPFA which support knowledge and skills and other requirements; accessible via a secure online library Pension Scheme Advisory Board Infrastructure event. development by all those involved in the Committee and Board members are management and oversight of public sector • act with integrity and; 22 Nov 2018 Northern Conference on Pension Funds Manchester 1 0 personally responsible for identifying gaps in pension funds. • are accountable to the Fund’s their knowledge which could prevent them 30 Nov 2018 Pre committee briefing – LCPF Actuarial Valuation. County Hall, Preston 15 0 stakeholders for their decisions. In 2015 a new KSF focussed on the performing their duties effectively. They are 5/7 Dec 2018 LAPFF Annual Conference Bournemouth 1 1 knowledge requirements of Local Pension The competency and performance of expected to undertake self-directed learning 17/18 Jan 2019 LGPS Governance Conference Bristol 1 2 Board members was introduced to reflect senior officers charged with managing to complement the training provided and the Pensions Regulator Code of Practice and directing the Lancashire County to seek additional support and advice from 23 Jan 2019 Workshop on Responsible Investment County Hall, Preston 9 3 No 14 which came into force in April 2015. Pension Fund fall under the auspices of fund officers as required. 7 Feb 2019 LAPF Strategic Investment Forum London 1 0 CIPFA has identified a syllabus of 8 core Lancashire County Council’s Performance Details of training provided internally areas of knowledge across the KSFs it has Development Review (PDR) process and 7 Feb 2019 6th Annual Public Sector update for Payroll and HR Professionals London 0 1 and attended externally by members of published to date: wider continuing professional development the Pension Fund Committee (PFC) and 6/8 Mar 2019 PLSA Investment Conference 2019 Edinburgh 2 0 (CPD) frameworks. For this reason, officers 1. pensions legislation; Lancashire Local Pension Board (LLPB) are outside the scope of this training policy 12 March 2019 Workshop on Asset safety and cyber resilience County Hall, Preston 2 2 during the year ended 31 March 2019 are 2. public sector pensions governance; which focusses specifically on the training detailed below. 13 Mar 2019 SPS Local Authority Pension Fund Investment Issues Conference. London 1 0 3. pensions administration; needs of members of the Pension Fund 13 Mar 2019 CIPFA Local Pension Board Seminar Liverpool 0 1 29 Mar 2019 Pre committee briefing on Asset Pooling Guidance County Hall, Preston 13 0
In addition some members of the Pension 1. Conflict of interest. 5. Providing information to members and Fund Committee and the Lancashire 2. Managing risk and internal controls; others; Local Pension Board have completed the 3. Maintaining accurate member data; 6. Resolving internal disputes; following online modules in The Pension 7. Reporting breaches of the law Regulators Public Service Toolkit: 4. Maintaining member contributions;
16 Lancashire County Pension Fund Annual Report 2018/19 17 F Investment Policy Fund performance at 31 March 2019 14%
11.7% 11.8% and Performance 12% 10.8% 9.5% 10% 8.8% 8.0% 8% Performance All the performance figures presented term strategic asset allocation returns 6.7% Investment pooling As a pension fund, the Lancashire County here are as at 31 March 2019. Over the (strategic weights multiplied by an asset 6% In 2016, LCPF appointed Local Pensions Pension Fund’s (“LCPF” and the “Fund”) year, the Fund delivered 11.7% return on class benchmark). 4.4% 4.4% Partnership Investments Limited (“LPPI”) investment horizon is long term. The assets, outperforming its policy portfolio The value of the Fund’s investment assets at 4% to manage its assets. LPPI is a Financial investment strategy is based on the Fund’s and its triennial discount rate (the 31 March 2019 was £8,379 million, up from Conduct Authority (“FCA”) regulated objectives of balancing capital growth “actuarial benchmark”) by 3.4% and 7.0% £7,610 million at 31 March 2018. Public 2% investment company which is wholly owned with capital preservation, maintaining respectively. The actuarial benchmark with equities, private equity and infrastructure by Local Pensions Partnership Limited, a effect from the 2016 actuarial valuation is 0% adequate cash flows to cover all liabilities were the top contributors from an asset Fund Policy Portfolio Actuarial Target 50:50 joint venture between Lancashire as they fall due. The Fund invests its assets an inflation-linked measure, CPI + 2.2% class perspective. Longer-term (over County Council and London Pensions Fund to meet its liabilities over the long-term, and p.a. At the 31 March 2016 valuation this a 3-year or 5-year horizon) the Fund’s Year 1 Year 2 Year 3 Authority (LPFA). LPFA has also appointed therefore performance should be assessed discount rate was 4.4% p.a. and this is returns have been strong, comfortably LPPI to manage its assets, in addition to against these objectives and over reflected as a fixed actuarial benchmark outperforming both its actuarial benchmark The Royal County of Berkshire Pension a corresponding period. from that date in the table below. Policy and its policy portfolio. Fund (“RCBPF”) which joined the pooling portfolio returns reflect the Fund’s long- 1 year Fund performance by asset class at 31 March 2019 initiative in May 2018. The combined assets of all three parties now totals approximately £17bn. The investment teams of Lancashire 25% County Pension Fund, LPFA and RCBPF Return Metric 1 Year 3 Year* 5 Year* 20.3 % have been merged, leading to a more 20% Investment Assets Return 11.7% 11.8% 10.8% 16.0 diversified pool of resources. As at the end % 12.0 12.9 of March 2019, LPPI had created 6 asset 15% % Actuarial Benchmark 4.4% 4.4% 6.7% 10.5 % “pools” (vehicles) across public equities, % Policy Portfolio 8.0% 9.5% 8.8% private equity, infrastructure, credit, fixed 10% 5.9 6.2 5.9 % % 4.7 % income and diversifying strategies to * Annualised Returns 5% % 2.8 3.1 manage clients’ assets. The final investment % 0.8 % % vehicle for Real Estate assets is expected to 0% be set up by Q4 2019. Private Public Infrastructure Credit Real Fixed Equity Equity Estate Income Further information regarding the Local Pensions Partnership pools in which Fund Asset Class Benchmark the Fund participates, including set- up, investment transition and ongoing investment management costs is available in section G, 'Asset Pooling' of this annual 3 year Fund performance by asset class at 31 March 2019 report. Note 13 to the financial accounts, section 25% H, provides an analysis of investments between those held within the LPPI pools 19.0 20% % and those assets within the Fund's portfolio 14.4 14.4 that are not. % % 15% 11.6 % 7.6 8.6 8.1 10% % % % 6.8 6.3 5.6 % % % 5%
0% Private Public Infrastructure Credit Real Equity Equity Estate
Fund Asset Class Benchmark
18 Lancashire County Pension Fund Annual Report 2018/19 19 F
Current and Strategic Asset The performance of the assets is assessed The allocation of the Fund’s assets for the Macro outlook – the last 12 Overall we have a cautious view, informed been positive for most asset classes and allocation on a “total return” basis (i.e. income and previous financial year has been added months by the tightening of financial conditions and prompted the Bank of England (BoE) to capital return combined). Having adequate for comparison purposes. LPPI provides a less accommodative monetary policy from raise rates only once (25 basis points). In recent years the Fund has focused The year through to March 2019 was a cash inflows to pay liabilities as they fall input to the Fund on its long-term strategic major central banks. LPPI’s approach is not on reducing its equity risk, increasing period of slowing global economic activity. Turning to the Eurozone, GDP growth due reduces both the need for investment asset allocation (SAA), but LCPF retains to “time the market”, but to steer the Fund’s allocations to other asset classes such as The deceleration in global gross domestic decreased significantly over the past twelve trading (and its impact on fees) and the risk autonomy in deciding how this is set. LPPI allocation through the ongoing market risks infrastructure, real estate and credit with product (‘GDP’) growth was relatively months with activity in Germany and Italy of having to liquidate assets during adverse has discretion to manage LCPF’s assets and opportunities. the intention to better diversify its exposure synchronised across the developed and being the biggest headwind among the market periods (which can have a negative within the asset class ranges set as part of and to increase its income yielding asset emerging markets. Inflation, within the From a regional perspective, the U.S. biggest regional economies. effect on assets that are marked-to-market). the SAA decision. The SAA target and allocation. This was also reinforced with an UK, Eurozone and U.S., subsided from key continued to be the strongest performer Ultimately, the aim is to improve risk- range for each asset class has remained In aggregate, the labour market has updated strategic asset allocation (SAA) central bank levels in the first quarter of among major developed economies, adjusted returns over the long term, whilst unchanged since December 2017. The next remained healthy, with the unemployment in Q4 2017, which led to a 2.5% reduction 2019. GDP growth and inflation are two despite a notable slowdown in Q4 2018. ensuring LCPF’s objectives are met. SAA review is anticipated in 2020. rate declining to the lowest level since in the SAA target for private equity and key macroeconomic variables that impact all The economy continued to benefit from 2008. However, the European economy corresponding increase in infrastructure. asset classes (to varying degrees and over a tight labour market, with ongoing net (unlike the U.S. and the UK) is still likely different time horizons) and are cornerstone employment gains and stronger wage operating at a lower than full employment elements of our analysis. growth – both close to cyclical highs – being level. This has reinforced an ongoing a tailwind for consumers’ spending. Amid this macroeconomic backdrop accommodative monetary policy from the The following table presents LCPF’s current asset allocation LPPI maintained a cautious view, avoiding In the U.K., growth has been somewhat European Central Bank (“ECB”), as inflation slower in the past twelve months. Despite also has remained persistently below target, versus strategic target at the end of March 2019; taking excess risk for the Fund in a period we consider as late stage in the economic the slowdown, our labour market has despite the termination of its quantitative cycle. Our anticipation of favourable market remained healthy, with the unemployment purchase programme as scheduled in 2018. Asset Class March 2019 March 2018 conditions ending informed our decision rate dipping to the lowest level since In China, officials have been in the midst Strategic December 1974. Nominal and real wage Assets Assets Range to pivot LCPF’s portfolio more defensively. of an ongoing trade dispute with the U.S. Allocation (%) Allocation (%) Allocation (%) (after accounting for inflation) gains (GBP Million) (GBP Million) Accordingly, we reduced the Fund’s After both countries raised tariffs on billions overweight position in public equity (versus were close to cyclical highs at the end of worth of imports from each other, they Public equities 3,730 44.4% 3,214 42.2% 42.5% 40% - 50% its SAA target), moved to an underweight March, providing additional support to started bilateral negotiations that have yet to Fixed income* 319 3.8% 184 2.4% 2.5% 0% - 10% position in credit and an overweight position consumption and overall growth. provide a sustainable solution. in fixed income over the year. In broad Private equity 650 7.7% 548 7.2% 5.0% 0% - 10% Although the Fund is less affected by the Although the Fund is not directly impacted terms, GDP growth tends to be a variable growth outlook in the domestic economy by these developments (its direct Infrastructure 1,146 13.7% 991 13.0% 15.0% 10% - 20% that impacts public equity indirectly though directly, there is a bigger indirect effect exposure to China and Emerging Markets Credit 1,486 17.7% 1,562 20.6% 19.0% 10% - 25% the pace of companies’ earnings growth, through the exchange rate, inflation and is relatively small), its indirect exposure whilst inflation can have a stronger effect Real estate 886 10.6% 829 10.9% 15.0% 10% - 20% interest rates. These parameters have been through companies’ global supply chain on fixed income assets indirectly through broadly favourable for the Fund throughout systems as well as market access and Cash* 177 2.1% 282 3.7% 1.0% 0% - 5% current and future interest rate expectations. this period. With most assets denominated profit generation makes these headwinds Total* 8,394 100.0% 7,610 100.0% 100.0% The Fund’s tactical positioning assisted in in dollars or other foreign currency, the far from insignificant. LPPI continuously the investment outperformance versus its weakening of Sterling increased the Fund’s monitors these developments and aims to Policy Portfolio over the past year, by having net asset value in domestic currency minimise any impact by investing the Fund’s * Corporate bonds are included within the fixed income asset class for financial reporting. less direct exposure to the market sell-offs terms. Additionally, the moderate inflation assets within a multi-asset, global and well For performance reporting and within the investment strategy, the cash allocation includes exhibited in Q1 2018 and Q4 2018. levels experienced in the past year have diversified portfolio. corporate bonds held for liquidity.
20 Lancashire County Pension Fund Annual Report 2018/19 21 F
Public Equities (Global) GEF – factor exposure breakdown as at 31 March 2019 GEF – sector weights v MSCI ACWI as at 31 March 2019 The LPPI Global Equity Fund (“GEF”) combines an internally managed 5.1% Health Care portfolio with a variety of external equity Energy managers, which operate with differing 9.9% Materials and complementary styles of investment selection. During the year LPPI has not Communication Services changed the composition of external Financials managers within its GEF. The GEF Utilities maintains a Quality (factor investing style) 14.5% Consumer Discretionary bias, however other styles are included to Real Estate provide diversification. Although the GEF’s 55.8% Information Technology performance has been strong this year, Industrials the full merits of its strategies are better assessed over the longer-term (GEF was Other launched in October 2016). Cash The GEF’s sector and regional exposures 14.7% Consumer Staples compared to its benchmark the MSCI Quality: Large Cap All Country World index (MSCI ACWI) -6% -4% -2% 0% 2% 4% 6% 8% 10% remained broadly unchanged over the Low Volatility year. From a sector exposure perspective, the GEF maintained an overweight to Value Consumer Staples versus its benchmark, which follows naturally from its Quality style Quality: Small Cap GEF–regional weights v MSCI ACWI as at 31 March 2019 bias. From a regional exposure perspective, Emerging Markets Western Europe (which includes the UK) Africa / Middle East remains the largest overweight position, whilst the Asia-Pacific region is the fund’s Asia Pacific largest underweight. Overall, the GEF maintains an underweight position to GEF – ten largest equity holdings as at 31 March 2019 Central Asia Emerging Markets compared to benchmark. Eastern Europe Company GICS Industry % of GEF Western Europe Visa Inc IT Services 3.1% South & C. America Nestle SA Food Products 3.1% North America British American Tobacco Plc Tobacco 2.6% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Accenture Plc IT Services 2.5% Colgate-Palmolive Co Household Products 2.4% Apple Inc Technoloy Hardware, Storage % Peripherals 2.1% Starbucks Corp Hotels, Restaurants & Leisure 2.0% Pepsico Inc Beverages 1.7% Waters Corp Life Sciences Tools & Services 1.4% Automatic Data Processing IT Services 1.4%
22 Lancashire County Pension Fund Annual Report 2018/19 23 F
Fixed Income FIF – holdings maturity as at 31 March 2019 Private Equity LCPF private equity portfolio – investment LPPI’s Fixed Income Fund (“FIF”) was Private Equity investments are held strategy breakdown as at 31 March 2019 launched in February 2018 and LCPF Other through a variety of closed-ended limited invested in it on launch day. The FIF 20 years + partnerships, spanning a wide range currently consists of two complementary of vintages and managed by a diverse 17.8% 15-20 years 0.6% 3.2% managers, one with a “top down” 10-15 years collection of different managers who, investment style and the other with a in turn, cover a variety of strategies and 7-10 years Co-Investment 15.1% “bottom up” focus. The FIF’s performance 5-7 years geographic areas. Compared to Public 3.2% since launch has been positive, whilst also 3-5 years Equity, Private Equity offers a higher risk Primary providing a “cushion” for LCPF’s returns and higher return profile. This comes from 1-3 years during the Q4 2018 market downturn. generally investing in smaller companies Secondary <1year with higher leverage. Private Equity also Over a 1-year horizon, the FIF has -10 0 10 20 30 40 50 underperformed its benchmark, the has reduced liquidity – a 10-year fund life Bloomberg Barclays Global A is common. enchmark. The lower duration profile of The last 10 years has seen favourable the fixed income fund is the result of a FIF – holdings by credit rating as at 31 March 2019 conditions for Private Equity, driven by a deliberate decision based on the liquidity rise in valuation multiples, low interest rates 78.9% 81.1% needs of the Fund. Below are three charts, Other and improvement in fundamentals. LCPF’s exhibiting the FIF’s aggregate positioning Less than C Private Equity portfolio has performed as at 31 March 2019. Please note that C particularly well, consistently outperforming individual exposures may not sum to 100% Ca the benchmark return due to well diversified due to derivative contract positions. Caa1- Caa3 exposure to many top quartile managers. LCPF private equity portfolio – investment type B1-B3 LCPF has reduced the rate of commitment breakdown as at 31 March 2019 Ba1-Ba3 to new private equity funds over the last 12 Baa1-Baa3 months in line with its aim of reducing its 17.8% A1-A3 asset class exposure over the next few years, 0.6% 3.2% Aa1-Aa3 whilst ensuring that vintage diversification Aaa and manager relationships are maintained. 15.1% Buyout A reduction in exposure3.2% to large buyouts, -10 0 10 20 30 40 50 where valuations and leverage are currently at high levels has also been ongoing. Growth Equity Special Situations/ FIF – holdings sector exposure as at 31 March 2019 Distressed
Venture Capital
Others IRS 78.9% Cash and Cash Equivs 81.1% CDS Government-related FI Futures Treasuries Securitised Corporates -30 -20 -10 0 10 20 30 40 50
24 Lancashire County Pension Fund Annual Report 2018/19 25 F
LCPF infrastructure portfolio – LCPF private equity portfolio – strategy breakdown as at 31 March 2019 investment type breakdown as at 31 March 2019 20.7%
Real Estate LCPF real estate portfolio – Infrastructure Value-added LCPF’s real estate portfolio comprises two investment type breakdown as at 31 March 2019 The majority of LCPF’s infrastructure 79.3% investment types: direct and indirect. The exposure is through LPPI’s Global Core direct portion of the portfolio, which forms Infrastructure Fund (“GIF”). This the majority of the real estate allocation, comprises allocations to a variety of global is managed by Knight Frank and consists infrastructure funds, and direct investment of UK commercial property investments. projects. A key component of the pool It also comprises an allocation to local is GLIL. Through GLIL LCPF now owns investment opportunities. The indirect interests in various core infrastructure portion of the portfolio includes allocations assets in the UK, including investments in 86.0% 14.0% to a European real estate investment wind-powered electricity generation, water LCPF infrastructure portfolio – fund managed by M&G and a healthcare assets, rail rolling stock and ports. LPPI is sector breakdown as at 31 March 2019 property fund managed by Kames. the appointed Alternative Investment Fund Direct Real estate plays a strategically important Manager (AIFM) of GLIL. 22.0% role within LCPF’s overall investment Indirect Infrastructure as an asset class typically portfolio, both because of its diversification offers long-term returns that are aligned to benefits as well as the rental income the Fund’s investment objectives whilst also generated that is used to fund member providing a source of diversification from 42.4% Regulated Assets benefits without the need to liquidate other other asset classes within the portfolio. As investments. Given the long term-nature of well as investing in infrastructure funds, Social incl PFI these investments, performance should be the GIF has made an increasing number of assessed over longer time horizons. LCPF’s direct investments in global infrastructure Trad Energy - Ren real estate portfolio has produced strong LCPF real estate portfolio – with significant allocations in the renewable Energy/Waste performance over a 3-year and 5-year sector exposure breakdown as at 31 March 2019 energy sector. The scale that the GIF 21.1% Transport and horizon, comfortably outperforming its brings enables investments to be made Distribution target return over these periods. on favourable terms, which reduces fee 31.2% costs over the investment horizon, and also provides stronger governance rights to protect LCPF’s long-term interests. Like 14.6% 22.5% 22.0% real estate, significant initial investment 19.7% costs may be needed which could impact LCPF infrastructure portfolio – geographical performance in the short-term. From a breakdown as at 31 March 2019 sector exposure the LCPF’s infrastructure portfolio continues to be well diversified.
4.6% 35.5% 38.5% ROW
Industrial Office Retail Other Residential North America UK Europe (Excl UK)
4.6% 21.4%
26 Lancashire County Pension Fund Annual Report 2018/19 27 F
Credit GCF credit portfolio – investment type Governance Responsible investment and arrangements that guide the practical The majority of LCPF’s credit exposure is breakdown as at 31 March 2019 There are four levels of responsibility for the The Fund’s responsible investment activities, implementation of our strategy and the through LPPI’s Global Credit Fund (“GCF”). investment management within Lancashire with a focus on the main changes and actions we undertake (directly and through The GCF invests in a range of credit-linked County Pension Fund: developments over the past 12 months are our asset managers) as an engaged asset 24.8% owner. assets globally, predominantly in illiquid 25 • The County Council’s Pension Fund highlighted below. investments on a buy and hold basis, across Committee takes major policy decisions As a Fund we are committed to ensuring We became a signatory to the Principles of the credit ratings spectrum. The income and monitors overall performance. The members’ retirement savings are being Responsible Investment (PRI) in 2015 as a generated from the GCF is another useful Pension Fund Committee comprises managed responsibly through well-informed way to measure ourselves against a globally source of cash to meet liability payments 20.6% twelve County Councillors and seven investment decisions and appropriate recognised standard of good practice and and this is incorporated into the cash flow 20 voting co-optees representing other ownership oversight. Responsible we have been reporting to the PRI in detail modelling that LPPI conducts on behalf of interested organisations; Investment contributes to the delivery of the for the past two years. During this time the Fund. our thinking and priorities have continued • The Investment Panel (“Panel”) provides sustainable returns needed to pay pensions and its objective is to decrease investment to evolve and have also adapted to expert professional advice to the accommodate practical changes connected 2018 was a challenging year for credit Pension Fund Committee in relation to risks and to improve risk-adjusted returns. 15 with asset pooling. Bringing our investments markets. The GCF’s return over one year 13.6% investment strategy. The Panel supports Our approach to RI begins at a strategic under common management arrangements lagged that of the benchmark set for the the Head of Fund with the specialist level with decisions about which asset alongside partner pension Funds meant strategy. Over the longer-term performance advice required by the Pension Fund classes the Fund will invest in and continues agreeing a range of delegations which place remains strong, notably outperforming the Committee. The Investment Panel through the objectives and priorities we day to day asset selection and portfolio benchmark over a three-year period. The consists of two independent external identify within our RI Policy. Whatever 10 management responsibilities with LPPI. broad types of the investments comprising 9.2% investment advisors and the Head of the asset class or the sector, it is a clear Objective standards, clear expectations the GCF at 31 March 2019 are included in 7.9% Fund. requirement for our asset managers to and strong arrangements have been an the graph below. 7.4% evaluate material influences which could 6.5% • The investment management team of important foundation for us delegating affect the future value of our investments 5.6% Local Pensions Partnership Investments significant aspects of the practical delivery by incorporating Environmental, Social and of RI. 5 Ltd (LPP I) undertake day-to-day investment fund selection, monitoring Governance (ESG) considerations into their analysis. You can read more about During 2018/19 the main landmarks 2.6% and due-diligence; our beliefs and approach to Responsible from our direct activity on RI include the 1.1% • Where LPP I have chosen to make Investment including our commitment following; 0.5% allocations to third party investment to ESG integration within our Investment • undertaking a thorough review of our RI 0 managers or to invest in third party Strategy Statement (ISS) which is Policy; unitised investment vehicles, those available from our website https://www. managers fix precise weightings and • delisting as a signatory to the Principles of Cash yourpensionservice.org.uk/media/1585/ Responsible Investment (a condition of select the individual investments within investment-strategy-statement-approved-
Situations Situations enabling LPP to become a PRI signatory); their particular remit; march-2018.pdf A more detailed description of the • having two representatives appointed
Real Estate Debt Estate Real The importance we place on Responsible
Real Estate Equity Estate Real onto the Executive of the Local Authority
Real Assets Credit Assets Real responsibilities of the Committee, its Sub- Investment is reflected in the standards
Distressed & Special & Distressed Credit Opportunities Credit Asset-Based Lending Asset-Based Pension Fund Forum (LAPFF).
Emerging Market Debt Market Emerging Committees and the Panel is found in the we hold ourselves and our asset
Liquid Diversified Credit Diversified Liquid Regulatory Capital Relief Capital Regulatory Corporate Direct Lending Direct Corporate Governance Policy Statement. managers accountable to, the policies
28 Lancashire County Pension Fund Annual Report 2018/19 29 F
In light of changes introduced by asset right. Guidance from the PRI confirmed the (as councillor and officer representatives Theme of Engagement Route of Engagement pooling and a continually evolving wider Fund would need to delist if LPP became respectively) at the Forum’s AGM in 2018 landscape of stewardship good practice, it a signatory to prevent duplicate reporting. and have been working productively to help was timely to review the scope and focus We took the decision to go ahead on the LAPFF develop policy, plan activities and 120 of Fund’s RI Policy. A sub-group of the basis that the practical implementation of undertake engagement with companies Pension Fund Committee convened as a our investment strategy and the activities on behalf of the 80 LGPS funds who are Responsible Investment Working Group which fulfil our commitment to integrate members. Further information on LAPFF 100 to discuss and undertake a considered ESG are being undertaken by LPPI day to and its activities are available from the review which began in the early part of day. There are strong benefits from LPP Forum’s website. http://www.lapfforum.org/ 80 2018. The group considered the approach making these same commitments, being LAPFF’s Annual Report for 2018 provides and priorities for RI against good practice, networked directly with other practitioners details of the Forum’s engagement work latest guidance, and specific priority themes and reporting on activities publicly. during the year and illustrates the range 60 and recommended an updated RI Policy LCPF delisted and LPP became a PRI of issues and themes covered within to the Pension Fund Committee which was signatory in July 2018. Subsequently LPP 166 engagements across 98 individual adopted in November 2018. submitted a first set of detailed reporting companies. 40 The updated policy confirms the values against the PRI framework in spring 2019. and principles which underpin the Fund’s A Transparency Report capturing LPP’s approach to RI, identifies climate change disclosure is accessible from the PRI 20 and corporate governance standards as website. https://www.unpri.org/signatories/ issues of primary concern and divides the local-pensions-partnership/3478.article. implementation of RI into 5 activities The Fund has identified collaboration with 0 • Voting Globally other investors and engagement through AGM • Engagement through Partnerships partnerships as important facets of its Letter RI approach. We recognise that working Climate change 55 Meeting • Shareholder Litigation collaboratively can achieve greater influence Campaign (general) 38 Alert Issued • Active Investing than acting unilaterally and we seek to align • Divestment ourselves with likeminded investors through Governance (general) 21 collective organisations such as the Local The Fund receives a quarterly report from Authority Pension Fund Forum (LAPFF). Other 19 LPP on the implementation of its RI Policy LAPFF has long been LCPF’s preferred which includes detailed insights on each of engagement partner and the Fund has been Employment standards 17 these areas of activity. A copy of the Fund’s represented at quarterly business meetings, Board composition 11 RI Policy is publicly available from the Fund conferences and events for a number of website https://www.yourpensionservice. years. In 2018 we took the additional step of Renumeration 10 org.uk/media/1728/lcpf-responsible- seeking nomination to the LAPFF Executive investment-policy-nov-2018.pdf in order to contribute to strategic decision- Human rights 8 During 2018 LCPF considered the case making. Both the Chair of the Pension Environment risk 4 and took the decision to support LPP Fund Committee and the Head of Fund becoming a signatory to the PRI in its own successfully gained seats on the Executive Reputational risk 2 Audit practices 2 Supply chain management 1 Social risk 1 Finance and accounting 1
30 Lancashire County Pension Fund Annual Report 2018/19 31 F
Engagements by Industry Risk Management Risk management and monitoring is also Compliance with Myners The Fund recognises the importance of supported by service level agreements with Principles LPP, who provide analysis and reporting Motor vehicles and managing risks effectively. To this end, The Fund is compliant with the Myners across the four main groups above. passenger car bodies the Fund has a risk officer to manage and Principles, details of which can be found in General mining monitor all risks through effective risk Risk reporting is carried out every 6 months the Investment Strategy Statement. management processes. A central risk to the Lancashire Pension Fund Committee. Broadline retailers register is maintained to identify, record and Additional oversight is also undertaken by Electric services mitigate all risks under the following four the Lancashire Local Pension Board.The Petroleum refining main group headings: Fund’s local pension board plays a vital role • Investment and funding risk – all financial in helping the Pension Fund Committee to Integrated oil & gas risks associated with the Fund; hold LPP to account. Regular reports on performance across all aspects of pension Airlines • Member risk – all risks which may impact fund management are provided and Pharmaceutical preparations on the high levels of service the fund discussed. Neither the Local Pension Board, members receive; Banks employers nor members play a formal role • Operational risk – risks which could on the oversight structures of the LPP since Automobiles/aluminium sheet plated foil negatively impact the smooth and the LPP is established as a group corporate Home construction/aircraft parts and effective running of all aspects of Fund structure, with statutory directors sitting on auxiliary equipment not elsewhere classified operations and governance; the LPP Boards. It is not a joint committee. Travel & tourism • Transition risk – the temporary risks However there are robust legal agreements Multiutilities associated with change. Once the in place which ensure the Fund is able to change is embedded, the risk lies in one hold LPP to account. Water of the other categories above. Exploration & production Aerospace Food products/computer peripheral equipment not elsewhere classified Business support services/typesetting 0 3 6 9 12 15
One of the most direct routes for exerting LPPI vote all shares in their Global Equities ownership influence and sharing views Fund centrally and publish quarterly reports with companies (to urge change or containing information on all meetings improvement) is through exercising the voted, the individual resolutions tabled right of shareholders to vote at the annual and whether voting supported or opposed meetings of listed companies. Since our proposals. During 2018/19 shareholder investments were pooled LCPF hasn’t voting by LPPI encompassed 483 company owned shares in listed companies directly. meetings and a total of 6,206 resolutions. Our interests in listed companies are now through holding units in the LPPI Global Equities Fund.
32 Lancashire County Pension Fund Annual Report 2018/19 33 G Asset pools
In 2015, the Department for The objective was to deliver: There are a number of governance issues to Pool set up and investment transition costs by year Housing, Communities and • Benefits of scale consider with new pooling arrangements, specifically: Local Government (DCLG, • Strong governance and decision making 2014/15 2015/16 2016/17 2017/18 2018/19 now MHCLG) issued LGPS: • the relationship between the pension • Reduced costs and excellent value for fund and the asset pool £m £m £m £m £m Investment Reform Criteria money and Guidance which set • the governance structure of the pool Legal fees - 0.1 0.1 0.3 - out how the government • An improved capacity and capability to invest in infrastructure. • the role and involvement of administering Professional fees - 0.1 0.1 0.3 - expected funds to establish authorities. This led to the creation of eight asset pools, Other support costs - - - 0.1 - asset pooling arrangements. The market value and performance of of which the partnership between the Total - 0.2 0.2 0.7 - LPFA and LCPF is one. Responsibility for pooled assets is set out in sections F determining asset allocation and investment (Investment Policy and Performance) and H (Accounts of the Fund) of this annual strategy remains with individual pension Transition costs - - 2.0 0.3 - funds. report. The implications of pooling for the governance and risks of the Fund have been In 2016 CIPFA and AON published considered and incorporated within this Investment Pooling Governance Principles, annual report and also within the updated Total expected costs and savings in order to support LGPS funds through policies and strategy statements of the the transition to asset pools and specifically Fund. The following table sets out the fee savings realised from the inception of pooling versus the years prior to the establishment of the Local to ensure they continued to operate strong Pensions Partnership. governance arrangements. The following disclosures aim to provide further detail regarding the transition of 2014/15 2015/16 2016/17 2017/18 2018/19 assets into pools, pool set up and transition costs, cumulative savings from pooling and £m £m £m £m £m ongoing investment management costs. Set up costs - 0.2 0.2 0.7 Transition costs - - 2.0 0.3 Fee savings - - (0.6) 0.4 (9.1) Pool set up and investment transition costs by type of expense Net (savings)/costs - 0.2 1.6 1.4 (9.1) realised Year ended 31 March 2019 Cumulative Direct costs Indirect costs Total Total Ongoing investment management expenses 2018/19 £m £m £m £m Legal fees - - - 0.5 Investments held within Local Pensions Investments held outside Local Pensions Partnership pools Partnership pools Professional fees - - - 0.5 Direct costs Indirect costs Total Direct costs Indirect costs Total Total Other support costs - - - 0.1 £m £m £m £m £m £m £m Total - - - 1.1 Fund value based fees 38.1 - 38.1 10.1 - 10.1 48.2 Performance fees 14.1 - 14.1 8.4 - 8.4 22.5 Transition costs - - - 2.3 Transaction costs 1.0 - 1.0 - - - 1.0 Custody fees ------53.2 - 53.2 18.5 - 18.5 71.7
34 Lancashire County Pension Fund Annual Report 2018/19 35 H Accounts of the Fund Responsibilities for the Statement of Accounts
The responsibilities of the The responsibilities of the • Complied with the Code. Lancashire County Pension In discharging this overall responsibility · Managing risks and performance through administering authority Section 151 Officer to the In addition, the Section 151 Officer to the Fund – Annual Governance the Pension Fund is responsible for putting robust internal control and strong public in place proper arrangements for the financial management; and The administering authority is required: Pension Fund Pension Fund has: Statement 2018/19 governance of its affairs and facilitating the • To make arrangements for the proper The Section 151 Officer to the Pension Fund • Kept proper accounting records which Introduction · Implementing good practices in effective exercise of its functions including transparency, reporting and audit to administration of the financial affairs is responsible for the preparation of the were up to date; The Lancashire County Pension Fund is a arrangements for the management of risk. deliver effective accountability. of the Lancashire County Pension Pension Fund’s statement of accounts. In Pension Fund within the Local Government • Taken responsible steps for the The Fund has adopted its own Governance Fund (Pension Fund), and to ensure accordance with the CIPFA Code of Practice Pension Scheme (LGPS) which is a funded This statement sets out both how the prevention and detection of fraud and Policy Statement in line with the relevant that an officer has the responsibility on Local Authority Accounting in Great pension scheme created under the terms of Pension Fund has complied with its other irregularities. regulations concerning the governance of for the administration of those affairs. Britain (the Code), the statement is required the Superannuation Act 1972. Lancashire own Governance Policy Statement and The Statement of Accounts relate to funds within the LGPS. This statement has For Lancashire County Council, the to present fairly the financial position of the County Council is the body appointed Lancashire County Council’s Code of the financial year ended 31 March 2019 regard to relevant standards such as the respective officer is the Chief Executive Pension Fund at the accounting date, and under statute to act as the Administering Corporate Governance and include the Fund Account and the Myners’ principles. The Governance Policy and Director of Resources, who is also its income and expenditure for the year then Authority for the Fund. The Purpose of the Governance the Section 151 Officer to the Pension ended. Statement of Net Assets which are prepared Statement is available through the following At 31March 2019 the Lancashire County Framework Fund; in accordance with standard accounting link https://www.yourpensionservice.org.uk/ In preparing this statement of accounts, the practice as outlined in the notes to the Pension Fund provides a means of pension media/1204/governance-policy-statement- The governance framework comprises the • To manage its affairs to secure economic, Section 151 Officer to the Pension Fund has: accounts of the Pension Fund. saving and retirement security for 176,476 updated-january-2018.pdf systems and processes, culture and values efficient and effective use of resources, members across 300 organisations with by which the Pension Fund is directed and • Selected suitable accounting policies and Angie Ridgwell In addition the operation of the Fund is and to safeguard its assets. active members and a range of other controlled and the activities through which then applied them consistently; subject to Lancashire County Council’s Section 151 Officer organisations with only deferred or it engages with and informs stakeholders, • Made judgements and estimates that Code of Corporate Governance. The Lancashire County Pension Fund pensioner members. including both fund members and were reasonable and prudent; County Council’s Annual Governance employers. It enables the Fund to monitor While the Fund is technically not a separate Statement is prepared in accordance the achievement of its strategic objectives legal entity it does have its own specific with the Framework prepared by CIPFA/ and to consider whether those objectives governance arrangements and controls Solace “Delivering Good Governance in have led to the delivery of appropriate and which sit within Lancashire County Council’s Local Government” (2016 edition). The cost-effective outcomes. overall governance framework. Given both Framework defines the 7 core principles that the scale of the Pension Fund and the very should underpin the governance of each The system of internal control is a significant different nature of its operations from local authority namely: part of that framework and is designed those of Lancashire County Council more to manage risk to a reasonable level. It · Behaving with integrity, demonstrating generally it is appropriate to conduct a cannot, particularly in the investment strong commitment to ethical values and separate annual review of the governance context, eliminate all risk and can therefore respecting the rule of law; arrangements of the Pension Fund and this only provide reasonable and not absolute statement sets out that review. · Ensuring openness and comprehensive assurance of effectiveness. The system of stakeholder engagement; The Pension Fund’s Responsibilities internal control is based on an ongoing process designed to identify and prioritise The Pension Fund is responsible for ensuring · Defining outcomes in terms of sustainable risks to the achievement of the Fund’s that its business is conducted in accordance economic, social and environmental objectives, to evaluate the likelihood of with the law and proper standards and benefits; those risks being realised and the impact that what is, in effect, pensioners’ money · Determining the interventions necessary should they be realised, and to manage them provided in large part from the public purse to optimise the achievement of the efficiently, effectively and economically. is safeguarded and properly accounted intended outcomes; This statement reports on the annual review for. The Fund has a responsibility under · Developing the Fund’s capacity, including of the governance framework by officers local government legislation to make the capability of its leadership and the which confirms that the framework has been arrangements which secure continuous individuals within it; improvement in the way in which its in place within the Pension Fund for the year functions are delivered. ended 31 March 2019.
36 Lancashire County Pension Fund Annual Report 2018/19 37 H
The Fund’s Governance Measurement of the quality of services is undertaken. Matters reserved for the The management of risk is central to the Fulfilling the core functions of an Audit independent assurance in relation to Framework provided to Fund members and Pension Fund Committee and the Head of Fund’s activities and the Fund has continued Committee compliance provided by either the Fund’s or employers, ensuring they are delivered Fund are defined in the Governance Policy to develop and update its risk register. Key LPP’s custodian. LPP Investments Limited The key elements of the systems and The functions of an audit committee for the in line with the Fund’s objectives and Statement and more widely in the County areas of risk include: is a Financial Conduct Authority (FCA) processes that comprise the Fund’s Fund are performed by Lancashire County ensuring that they represent the best use Council’s Constitution. registered company and therefore has to governance framework are: • Investment and Funding Risk – all financial Council’s Audit, Risk and Governance of resources and value for money. follow strict rules over compliance and has a Development communication and risks associated with the fund; Committee, which conducts an annual The identification and communication The Pension Fund Committee has approved compliance team which is independent from embedding codes of conduct, definition • Member risk – all risks which may impact review of its effectiveness in undertaking of the Fund’s purpose objectives and a strategic plan for the Fund setting out the investment management team. of the standards of behaviour for on the high levels of service the fund this role. intended outcomes to Fund members specific objectives in relation to the four members and staff. members receive; Ensuring compliance with relevant laws The Fund and its officers must also and employers. dimensions of the running of a pension fund. comply with a range of other laws and These matters are defined in law and the and regulations, internal policies and The Fund has a clear objective as established Many of these functions are now performed • Operational risk – risks which could regulations applicable either to local various codes of conduct and protocols procedure and that expenditure is lawful by statute and it has an established under contract by Local Pension Partnership negatively impact the smooth and authorities generally or to any organisation. contained within the County Council’s The various Local Government Pension planning process focussed around the (LPP). These functions and the overall effective running of all aspects of Fund These are managed through the specific constitution. Staff are reminded of the Scheme Regulations, covering both the triennial actuarial review. The Fund has a strategic plan will continue to be monitored operations and governance; accountabilities of individual managers requirements of these codes on a regular structure and benefits payable by the Fund communication strategy which keeps both by the Head of Fund. • Transition risk – the temporary risks or through the wider County Council’s basis, while specific training in relation to and the investment of funds, are key from an Members and employing bodies informed. associated through pooling with LPP. business processes with the Monitoring Reports on the performance against matters such as declarations of interest is operational point of view. This is supported by the role of the Local Investment Strategy are taken to each Through the use of a detailed Risk Officer providing advice on the impact of provided to elected members following each Compliance with the Scheme Regulations is Pension Board. meeting of the Pension Fund Committee. Management Framework, LCPF maintain legislative changes when necessary. set of County Council elections. ensured by a dedicated technical team and Review of the Fund’s objectives and This reporting focuses not just on the a detailed risk register cover all the risks Review of the effectiveness of the Fund’s the use of a pension’s administration system intended outcomes and implications for performance of investments but on the scale identified within the four main risk groups. decision making framework including specifically designed for the LGPS. the Fund’s governance arrangements of the Fund’s liabilities. Asset allocation Mitigating actions are carried out and delegation arrangements and robustness The Fund’s investments are managed in The Head of Fund reviews new and strategies are as efficient as possible in reviewed quarterly to ensure that each risk is of data. line with the relevant regulations with proposed legislation and the results of providing the best returns (net of fees) for effectively managed or reduced. The interaction between the Pension Fund activities such as the triennial valuation the appropriate amount of risk. Committee and the Investment Panel, meet on an ongoing basis and proposes any The administration service is undertaken the needs of the Fund in terms of effective necessary changes either to objectives and by LPP. As part of its responsibility for the delivery of the Investment Strategy. This is outcomes or the governance arrangements Governance of the Fund the Pension Fund reflected in specific reporting arrangements to the Pension Fund Committee. Committee are responsible for overseeing in relation to investment activity. The Pension Fund Committee are the administration function. To do this the Review and update of standing orders, responsible for establishing the strategic Committee receives a quarterly update standing financial instructions, a scheme objectives of the Fund through a rolling 3 report on the activities of LPP. of delegation and supporting procedure year Strategic Plan and for monitoring the Definition and documentation of the notes / manuals which define how progress on the delivery of the strategic roles and responsibilities of those decisions are taken and the processes objectives. involved in the management of the Fund and controls required to manage risks. with clear delegation arrangements and All reports considered by the Pension At the top level these requirements are set protocols for communication. Fund Committee identify how the key risks out in the Governance Policy Statement and involved in any proposed decision and the Appropriate guidance documents and within the County Council’s Constitution. nature of mitigation, together with any legal constitutional documents such as the These are reviewed on a regular basis or other issues that might arise. Governance Policy Statement provide the and are supported by a range of detailed basis on which the management of the Fund materials appropriate to specific activities.
3816 Lancashire County Pension Fund Annual Report 2018/19 39 H
Assurance provided by internal audit Resolution Procedure are reported annually • An annual “brief” for Finance Directors Review of Effectiveness Actions Planned for 2019/20 The Committee have noted the issues Assurance over the council’s governance and in the Annual Administration Report. of employer organisations providing The Pension Fund Committee is The following specific actions are raised by the Head of Internal Audit in oversight of the Fund and the operational Identifying the development needs of information on the performance of the responsible for conducting, an annual proposed for during 2019/20. relation to the Local Pension Partnerships Fund and an update on specific issues of internal audit and will continue to ensure activity for which the council is responsible members and senior officers in relation review of the effectiveness of its • The triennial valuation of the Fund is provided by the county council’s internal to their roles and supporting them interest, such as the triennial valuation. governance framework. This is informed that they are held to account for any areas audit service. Assurance over the Fund’s through appropriate training. • The publication of committee papers, by the work of the Head of the Pension • To monitor the administration service of concern and that the Head of Internal administration and investment activities is minutes and various annual reports and Fund, the Head of Internal Audit’s annual as changes continue to be made within Audit performs extra work in these areas Elected members undertake training needs LPP. to provide further assurance. provided by Local Pensions Partnership Ltd’s analysis linked to the Chartered Institute of policy documents on the internet. report, and also reports of the external own internal audit service. auditor. The key planned activities of the • To review the cost of LPP and estimated Public Finance and Accountancy (CIPFA) The incorporation of good governance County Councillor Abigail Leech Fund during 2018/19 were: savings made. A short programme of work has been Knowledge and Skills Framework. This has arrangements in respect of partnerships Eddie Pope completed in respect of the county council’s resulted in the provision of access to a range and other group working and reflecting • Continued development of a socially • To revise the Funding Strategy Chair of the Pension Head of Fund responsibilities, resulting in substantial of specific reading material and the provision these in the Fund’s overall governance responsible investment policy Statement as necessary Fund Committee Lancashire County assurance the controls are adequately of a programme of learning opportunities arrangements. • Monitor Pensions administration Conclusion Pension Fund designed and effectively operated. The targeted at areas of identified need. In The Fund is bound by Lancashire County including impact of LPP’s Overall, the Pension Fund Committee has longer programme of work addressing addition prior to major decisions coming Council’s partnership protocol, which administration transformation plan Date 31 July 2019 LPP’s activities has included seven audit before the Pension Fund Committee topic the appropriate systems and processes highlights the need for such arrangements • To review the compliance of employers in place to ensure good governance is engagements, the outcomes of which have based training relating to the decision at to reflect good practice in terms of been mixed. In particular the internal auditor hand is provided. and undertake an assessment of the risk maintained over the Fund. governance. The Fund itself has a number they pose to the Fund. has provided assurance that controls over All staff are subject to an annual appraisal of “partnerships”, which are largely in the benefits administration, cyber security, and process which identifies specific training form of jointly procured contracts for the investments’ legal & regulatory compliance, requirements and any knowledge gaps provision of services for which suitable are currently ineffective. However, these relevant to their role. Staff who are members governance arrangements are in place. are being reviewed again as part of the LPP of professional bodies also have ethical The main arrangement which involves the internal audit work plan for 2019/20. obligations to undertake Continuing pension fund is LPP. For all arrangements Whistle blowing and receiving and Professional Development relevant to their where there is a relationship between the investigating complaints from the public role. Fund and another organisation the Fund The Fund participates in the National Fraud Establishment of clear channels of seeks to spell out clearly the expectations Initiative, and actively investigates all data communication with all stakeholders and requirements on each party, whether matches found as a result of this process. ensuring accountability and encouraging in contractual form where appropriate or The results of this work are reported to the open consultation. through a form of “service level agreement” where a contract is not appropriate. Audit, Risk and Governance Committee. The Fund maintains a Communications The Fund is covered by the County Policy Statement as part of its policy The Fund seeks to comply with the Council’s whistle blowing policy, the framework which sets out the way in which principles set out in CIPFA’s Statement “The effectiveness of which is reported to the the Fund will engage with specific audiences Role of the Chief Finance Officer in Local Audit, Risk and Governance Committee and on what issues. The key channels of Government”, and the arrangements within annually. communication are: Lancashire County Council comply with the principles of this statement. The Fund, Complaint handling is carried out in line • Newsletters for active, deferred and is not a local authority in its own right and with either the Internal Dispute Resolution pensioner members; therefore the applicability of some elements Procedure (in relation to complaints • Campaign materials focussed around of the statement within the context of by members in relation to the level of scheme changes; the Fund is limited. The responsibility for benefit awarded) or the County Council’s fulfilling the County Council’s functions as complaints procedure (in relation to • Workshops, conferences and guidance materials provided to employers administering authority rests with the Head other matters). These policies are publicly of Fund. available and the numbers and outcomes • The Fund’s website, which contains of complaints under the Internal Dispute transactional capability.
40 Lancashire County Pension Fund Annual Report 2018/19 41 H
In association with Fund account
Independent auditor’s the Statement of Accounts. Reading the Use of our report 2017/18 Note 2018/19 report to the members of pension fund financial statements and the This report is made solely to the members £m £m Lancashire County Council auditor’s report thereon is not a substitute of the Authority, as a body, in accordance on the consistency of the for reading the audited Statement of with Part 5 paragraph 20(5) of the Local Dealing with members, employers and others directly involved in the Fund Accounts and the auditor’s report thereon. pension fund financial Audit and Accountability Act 2014 and as 374.9 Contributions 1 6 170.9 statements of Lancashire The audited financial statements and our set out in paragraph 43 of the Statement of County Pension Fund Report thereon Responsibilities of Auditors and Audited 11.5 Transfers in from other pension funds 7 11.0 included in the Pension Fund We expressed an unmodified audit opinion Bodies published by Public Sector Audit 386.4 181.9 on the pension fund financial statements Appointments Limited. Our audit work has Annual Report (254.8) Benefits 8 (275.3) in the Statement of Accounts in our report been undertaken so that we might state to dated 29 July 2019. the Authority’s members those matters we (17.9) Payments to and on account of leavers 9 (16.4) Opinion are required to state to them in an auditor’s Section 151 Officer responsibilities for the report and for no other purpose. To the (272.7) (291.7) The pension fund financial statements pension fund financial statements in the fullest extent permitted by law, we do not 113.7 Net (withdrawals)/additions from dealings with members (109.8) of Lancashire County Pension Fund (the Pension Fund Annual Report accept or assume responsibility to anyone ‘pension fund’) administered by Lancashire Under the Local Government Pension other than the Authority and the Authority’s (62.4) Management expenses 10 (76.3) County Council (the “Authority”) for Scheme Regulations 2013 the Section members as a body, for our audit work, 51.3 Net (withdrawals)/additions including fund management expenses (186.1) the year ended 31 March 2019 which 151 Officer of the Authority is responsible for this report, or for the opinions we comprise the Fund Account, the Net Assets for the preparation of the pension fund have formed. Returns on investments Statement and the notes to the pension financial statements, which must include 138.7 Investment income 11 193.5 fund financial statements, including a the Fund Account, the Net Asset Statement summary of significant accounting policies and supporting notes and disclosures 221.9 Profit and losses on disposal of investments and changes in the value of investments 13 781.5 are derived from the audited pension fund prepared in accordance with proper 360.6 Net return on investments 975.0 financial statements for the year ended 31 practices. Proper practices for the pension Robin Baker 411.9 Net increase in the net assets available for benefits during the year 788.9 March 2019 included in the Authority’s fund financial statements in both the Statement of Accounts (the “Statement of Statement of Accounts and the Pension Robin Baker, Key Audit Partner 7,209.3 Opening net assets of the scheme 7,621.2 Accounts”). Fund Annual Report are set out in the for and on behalf of Grant Thornton UK 7,621.2 Closing net assets of the scheme 8,410.1 In our opinion, the accompanying pension CIPFA/LASAAC code of practice on local LLP, Local Auditor authority accounting in the United Kingdom Liverpool fund financial statements are consistent, 1 Following the actuarial valuation in 2016, the Fund gave some employers the option of paying their 3 year future service rate and deficit contributions up 2018/19. 29 July 2019 in all material respects, with the audited front. A number of employers opted to do this and as a result the normal and deficit recovery contributions from the County Council and scheduled bodies financial statements in accordance with Auditor’s responsibility for the year ended 31 March 2018 include 3 years contributions from these employers, amounting to £218.0m. proper practices as defined in the CIPFA/ LASAAC code of practice on local authority Our responsibility is to express an opinion on whether the pension fund financial accounting in the United Kingdom 2018/19 Net assets statement as at 31 March 2019 and applicable law. statements in the Pension Fund Annual Report are consistent, in all material Pension Fund Annual Report respects, with the audited pension fund 31 March 2018 Note 31 March 2019 Note: The fund’s financial statements do not – Pension fund financial financial statements in the Statement take account of liabilities to pay pensions and £m £m other benefits after the period end. The actuarial statements of Accounts based on our procedures, which were conducted in accordance with 7,448.2 Investment assets 13 8,327.3 present value of promised retirement benefits is The Pension Fund Annual Report and the disclosed at note 24. International Standard on Auditing 810 162.0 Cash deposits 13 67.1 pension fund financial statements do not (Revised), Engagements to Report on This statement of accounts is that upon which the reflect the effects of events that occurred Summary Financial Statements. 7,610.2 Total net investments 8,394.4 auditor should enter his certificate and opinion. subsequent to the date of our report on 23.4 Current assets 19 22.0 It presents fairly the position of the Lancashire County Pension Fund as at 31 March 2019 and its (12.4) Current liabilities 20 (6.3) income and expenditure for the year then ended. 7,621.2 Net assets of the fund available to fund 8,410.1 benefits at the end of the reporting period
42 Lancashire County Pension Fund Annual Report 2018/19 43 H
Notes to the financial statements
NOTE 1 - PENSION FUND OPERATIONS AND MEMBERSHIP
The Lancashire County Pension Fund is part of the Local The Fund is overseen by the Lancashire Pension Fund Committee, Membership • Admitted bodies, which are other organisations that participate Government Pension Scheme and is administered by Lancashire which reports directly to Full Council. The Head of Fund is Membership of the LGPS is automatic although employees are in the Fund under an admission agreement between the Fund and County Council. The County Council is the reporting entity for this designated as the officer responsible for the management of the free to opt out of the scheme, remain in the scheme or make their the relevant organisation. Admitted bodies include voluntary, Pension Fund. Fund. own personal arrangements outside the scheme. Employees are charitable and similar bodies or private contractors undertaking a An up-front contribution of £137.0m was received from employers The Pension Fund Committee comprises twelve County Councillors re-enrolled every 3 years under the government’s auto-enrolment local authority function following outsourcing to the private sector. during the year ended 31 March 2018, relating to the years ending and seven voting co-optees representing the further and higher regulations. There are 432 employer organisations (2017/18: 412) within 31 March 2019 and 2020. The upfront contribution was recognised education sectors, the Lancashire borough, district and city councils, Organisations participating in the Lancashire County Pension Fund Lancashire County Pension Fund including the County Council in the year of receipt and therefore contribution income for the year Blackburn with Darwen Council, Blackpool Council and trade include: itself, of which 300 have active members (2017/18: 287) as detailed ended 31 March 2019 is significantly reduced when compared to the unions. in the following table. prior year. Contribution income of £170.9m together with transfers in • Scheduled bodies, which are local authorities and similar bodies The Committee meets at least quarterly, or otherwise as necessary, whose staff are automatically entitled to be members of the Fund. of £11.0m part funded the payment of £291.7m in respect of benefits with the Investment Panel in attendance and is responsible and transfers out. The resulting net cash outflow from transactions for fulfilling the role of Scheme Manager (which includes the with members for the year ended 31 March 2019, together with administration of benefits and strategic management of Fund management expenses is funded from investment income. investments and liabilities), the establishment of policies for 31 March 2018 Lancashire County Pension Fund 31 March 2019 The following description of the Fund is a summary only. For more investment management, the monitoring and review of investment 412 Total number of employers 432 detail, reference should be made to the Lancashire County Pension activity and Fund performance and the presentation of an annual Fund Annual Report 2018/19 and the underlying statutory powers report to Full Council on the state of the Fund and investment 287 Number of employers with active members1 300 underpinning the scheme, namely the Public Service Pensions activities for the year. Number of active scheme members2 Act 2013 and the Local Government Pension Scheme (LGPS) The Investment Panel provides professional expert advice and Regulations. makes recommendations to the Committee in relation to investment 25,126 County Council 25,721 strategy. The Panel comprises the Head of Fund as Chair and two 26,220 Other employers 27,422 independent advisers. General 51,346 Total 53,143 Full details of the responsibilities of the Panel and Committee are The scheme is governed by the Public Service Pensions Act published in the Investment Strategy Statement which is available Number of pensioners 2013. The Fund is administered in accordance with the following from the Fund website at Lancashire Fund Information. secondary legislation: 23,722 County Council 24,692 The Lancashire Local Pension Board, established in 2015, assists • the Local Government Pension Scheme (Amendment) Lancashire County Council in its role as scheme manager and 23,723 Other employers 24,651 Regulations 2018 provides a scrutiny role to ensure effective and efficient governance 47,445 Total 49,343 • the Local Government Pension Scheme (Transitional Provisions, and administration of the Fund. The Board comprises an Savings and Amendment) Regulations 2014 (as amended) independent chair together with representatives acting on behalf Number of deferred pensioners2 • the Local Government Pension Scheme (Management and of employers and members. All members of the Board must be 37,410 County Council 37,691 Investment of Funds) Regulations 2016. able to demonstrate the knowledge and skills set out in the terms of reference of the Board which are available to view on the Fund 35,873 Other employers 36,299 It is a contributory defined benefit pension scheme administered by website at Lancashire Fund Information. Lancashire County Council to provide pensions and other benefits 73,283 Total 73,990 The investments of the Fund are managed by the Local Pensions for pensionable employees, whether active, deferred or retired 172,074 Total membership 176,476 members, of Lancashire County Council, the district councils in Partnership (LPP), a joint venture owned, in equal shares, by Lancashire and a range of other scheduled and admitted bodies Lancashire County Council and the London Pension Fund Authority (LPFA). LPP manages the administration and investment functions within the geographic county of Lancashire. Teachers, police officers ¹ Includes employers for whom admission to the Fund is in progress on behalf of the two partner authorities. and fire-fighters are not included within the Fund as they come ² March 2018 membership numbers have been adjusted to transfer 5,330 pending within other national pension schemes. leavers as at that date from active membership category to deferred membership category. An adjustment of 5,089 pending leavers has been made at 31 March 2019.
44 Lancashire County Pension Fund Annual Report 2018/19 45 H
NOTE 2 - BASIS OF PREPARATION
Funding Benefits The Statement of Accounts summarises the Fund’s transactions for Accounting standards issued but not yet Benefits are funded by contributions and investment earnings. Prior to 1 April 2014, pension benefits under the LGPS were based the financial year and its position as at 31 March 2019. The accounts adopted have been prepared in accordance with the Code of Practice on Employee contributions are made by active members of the Fund on final pensionable pay and length of pensionable service. From 1 Under the Code of Practice on Local Authority Accounting in Local Authority Accounting in United Kingdom 2018/19 which is in accordance with the LGPS (Amendment) Regulations 2018 April 2014, the scheme became a career average scheme, whereby the United Kingdom 2018/19, the Fund is required to disclose based on International Financial Reporting Standards (IFRS), as and range from 5.5 % to 12.5% of pensionable pay for the financial members accrue benefits based on their pensionable pay in that information setting out the impact of an accounting change required year ending 31 March 2019. Employer contributions are set based year. Accrued pension is updated annually in line with the consumer amended for the UK public sector. by a new accounting standard that has been issued on or before 1 on triennial actuarial funding valuations. The last such valuation prices index. A range of other benefits are also provided including The accounts summarise the transactions of the Fund and report January 2019 but not yet adopted by the Code. It is anticipated that was at 31 March 2016 for the three years commencing 1 April 2017. early retirement, disability pensions and death benefits. the net assets available to pay pension benefits. They do not take the 2019/20 code will introduce amendments in respect of: Currently, employer contribution rates range from 0.0 % to 28.0 The scheme benefits are summarised in the following table. account of obligations to pay pensions and benefits which fall due • Amendments to IAS 40 Investment Property: Transfers of % of pensionable pay and are dependent on the assumptions after the end of the financial year nor do they take into account Investment Property applied by the actuary when carrying out the valuation. Examples the actuarial present value of promised retirement benefits The of variables which may differ between employers are demographic actuarial present value of promised retirement benefits, valued on • Annual Improvements to IFRS Standards 2014 - 2016 Cycle assumptions regarding the age profile and life expectancy of an International Accounting Standard (IAS) 19 basis, is disclosed in • IFRIC 22 Foreign Currency Transactions and Advance employees, probability of dependant’s pensions becoming payable note 24 to these accounts. The accounts have been prepared on a Consideration and the likelihood of ill health retirements. going concern basis. • IFRIC 23 Uncertainty over Income Tax Treatments • Amendments to IFRS 9 Financial Instruments: Prepayment Features with Negative Compensation Service Pre 1 April 2008 Service post 1 April 2008 and pre 1 April 2014 Service post 1 April 2014 The amendments noted above are not considered likely to have a Pension Each year worked is worth 1/80th x final Each year worked is worth 1/60th x final Each year worked is worth 1/49th x the significant impact on the accounts of the Fund. pensionable salary. pensionable salary. pensionable pay for that year (or 1/98th of pensionable pay if member opts for the 50/50 section of the scheme).
Lump Automatic lump sum of 3 x salary. No automatic lump sum. No automatic lump sum. sum In addition, part of the annual pension Part of the annual pension can be exchanged for a Part of the annual pension can be can be exchanged for a one-off tax free one-off tax free cash payment. A lump sum of £12 exchanged for a one-off tax free cash cash payment. A lump sum of £12 is paid is paid for each £1 of pension given up. payment. A lump sum of £12 is paid for for each £1 of pension given up. each £1 of pension given up.
46 Lancashire County Pension Fund Annual Report 2018/19 47 H
NOTE 3 - ACCOUNTING POLICIES
Fund account - revenue recognition Distribution from pooled funds Administrative expenses managers, custody fees and any fees payable to fund managers Contribution income Distributions from pooled funds are recognised at the date of issue. Administrative expenses consist of the following: which are deducted from fund assets. Transaction costs for all categories of investment, other than directly held property, are Normal contributions, both from the members and from the Dividend income arising on equities which are now held within • Expenses related to LGPS members and pensioners. These included within investment management expenses. All investment employer, are accounted for on an accruals basis. Member pooled funds is included within distributions from pooled funds. include all activities the pension scheme must perform to management expenses are accounted for on an accruals basis. contributions are made in accordance with the LGPS (Amendment) administer entitlements and provide members with scheme and Property related income Fees of the external investment managers, including the Local Regulations 2018 using common percentage rates for all schemes benefit entitlement information. Examples of this include pension Property-related income consists primarily of rental income. Pensions Partnership and custodian are agreed in the respective which rise according to pensionable pay. Employer contributions are allocations, benefit estimates, payment of benefits, processing mandates governing their appointments. Broadly, these are based set at the percentage rate recommended by the fund actuary, in the Rental income from operating leases on properties owned by the of the transfer of assets, commutation, communications with on the market value of investments under their management and payroll period to which they relate. Fund is recognised on a straight line basis over the term of the lease. members and pensioners, and annual benefit statements; Any lease incentives granted are recognised as an integral part of the therefore increase or reduce as the value of these investments Employer deficit funding contributions are accounted for on the due • Expenses related to interaction with scheme employers e.g. total rental income, over the term of the lease. change. dates on which they are payable under the schedule of contributions data collection and verification, contributions collection and The fund has negotiated with a number of managers that an element set by the scheme actuary or on receipt if earlier than the due date. Any property income not received by the end of the reporting period reconciliation, the employer’s help desk or other employer is disclosed in the net assets statement as a current financial asset. support, and communications with employers; and of their fee be performance related. Employers’ augmentation contributions and pension strain Where an investment manager’s fee note has not been received by contributions are accounted for in the period in which the liability Movement in the net market value of investments • Associated project expenses. the net assets statement date, an estimate based upon the market arises. Any amount due in the year but unpaid will be classed as Changes in the value of investments (including investment All administrative expenses are accounted for on an accruals basis. value of their mandate as at the end of the year is used for the a current financial asset. Amounts not due until future years are properties) are recognised as income and comprise all realised and inclusion in the fund account. In 2018/19, £0.7m of fees is based on classed as long term financial assets. Oversight and governance costs unrealised profits or losses during the year. such estimates (2017/18: £11.5m). Transfers to and from other schemes Oversight and governance expenses include the following costs: Transfer values represent amounts received and paid during the Fund account – expense items Net assets statement period for individual members who have either joined or left the • Investment advisory services (strategic allocation, manager Fund during the financial year and are calculated in accordance Benefits payable monitoring etc.); Financial assets with Local Government Pension Scheme (Amendment) Pensions and lump sum benefits payable include all amounts known • Independent advisors to the pension fund; Financial assets are included in the net assets statement on a fair Regulations 2018. to be due as at the end of the financial year. Any amounts due • Operation and support of the pension fund committee (i.e. those value basis as at the reporting date. A financial asset is recognised Individual transfers in or out are accounted for when received or but unpaid are disclosed on the net assets statement as current charged with governance of the pension fund), local pensions in the net assets statement on the date the Fund becomes party paid, which is when the member liability is accepted or discharged. liabilities. board, or any other oversight body; to the contractual acquisition of the asset. From this date any Transfers in from members wishing to use the proceeds of their Taxation • Governance and voting services; gains or losses arising from changes in the fair value of the asset are recognised in the fund account. additional voluntary contributions to purchase scheme benefits are The Fund is a registered public service scheme under section 1(1) of • Costs of compliance with statutory or non-statutory internal or accounted for on a receipts basis and are included in transfers in. Schedule 36 of the Finance Act 2004 and as such is exempt from external reporting (annual reports and accounts, etc.); The values of investments as shown in the net assets statement have been determined at fair value in accordance with the requirements Investment income UK income tax on interest received and from capital gains tax on the • Legal, actuarial and tax advisory services; proceeds of investments sold. Income from overseas investments of the code and IFRS13. For the purpose of disclosing levels of fair Interest income suffers withholding tax in the country of origin, unless exemption is • Non-custodian accountancy and banking services; and value hierarchy, the Fund has adopted the classification guidelines Interest income is recognised in the fund account as it accrues, using permitted. Irrecoverable tax is accounted for as a fund expense as it • Internal and external audit. recommended in Practical Guidance on Investment Disclosures the effective interest rate of the financial instrument as at the date of arises. (PRAG/Investment Association, 2016). All oversight and governance expenses are accounted for on an acquisition or origination. Income includes the amortisation of any Management expenses accruals basis. All staff costs associated with governance and The investments of the Fund are managed by the Local Pensions discount or premium, transaction costs or other differences between oversight are charged direct to the Fund. Associated management, Partnership and, other than direct property holdings and a number the initial carrying amount of the instrument and its amount at The Fund discloses its pension fund management expenses in accommodation and other overheads are apportioned to this activity of legacy assets, the investments have been transitioned into pools maturity calculated on an effective interest rate basis. accordance with the CIPFA guidance “Accounting for Local within the partnership. Lancashire County Council is a shareholder Government Pension Scheme Management Expenses (2016)”. and charged as expenses to the Fund. Dividend income of the Local Pensions Partnership. The Fund does not have a direct • Administrative expenses Investment management expenses investment in the partnership itself and no investment balance Dividend income is recognised on the date the shares are quoted ex- is included on the net asset statement of the Fund. The pooled dividend and is included within distributions from pooled funds. • Oversight and governance costs Investment management expenses are defined as any expenses incurred in relation to the management of pension fund assets and investments are disclosed in more detail in note 13 and note 22 • Investment management expenses financial instruments entered into in relation to the management of provides information on the transactions between the Fund and fund assets. This includes expenses directly invoiced by investment the partnership.
48 Lancashire County Pension Fund Annual Report 2018/19 49 H
NOTE 4 - CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
Freehold and leasehold properties Financial liabilities Pension Fund liability The properties were valued at open market value at 31 March 2019 The Fund recognises financial liabilities at fair value at the reporting The net pension fund liability is calculated every three years by the by independent property valuers Avison Young in accordance date. A financial liability is recognised in the net assets statement on appointed actuary, with annual updates in the intervening years. with the Royal Institute of Chartered Surveyors’ Valuation Global the date the Fund becomes party to a liability. From this date any The methodology used is in line with accepted guidelines and in Standards 2017 (the Red Book). The valuer’s opinion of market gains or losses arising from changes in the fair value of the liability accordance with IAS19. Assumptions underpinning the valuations value and existing use value was primarily derived using comparable are recognised in the fund account as part of the change in value of are agreed with the actuary and are summarised in note 24. This recent market transactions on arms-length terms. investments. estimate is subject to significant variances based on changes to the Foreign currency transactions Actuarial present value of promised underlying assumptions. Dividends, interest and purchases and sales of investments in foreign retirement benefits currencies have been accounted for at the spot market rates at the The actuarial present value of promised retirement benefits is Unquoted private equity and infrastructure date of transaction. End-of-year spot market exchange rates are assessed on a triennial basis by the scheme actuary in accordance investments used to value cash balances held in foreign currency bank accounts, with the requirements of International Accounting Standard (IAS) 19 It is important to recognise the highly subjective nature of overseas investments and purchases and sales outstanding at the and relevant actuarial standards. end of the reporting period. Any gains or losses are treated as part determining the fair value of private equity and infrastructure As permitted under the Code, the Fund has opted to disclose the of a change in market value of investments. investments. They are inherently based on forward looking actuarial present value of promised retirement benefits by way of a estimates and it is necessary to apply judgement to the valuation. Loans and receivables note to the net assets statement (note 24). Unquoted private equities and infrastructure investments are valued Loans and receivables are non-derivative financial assets with fixed Additional voluntary contributions by the investment managers using the International Private Equity or determinable payments that are not quoted in an active market. and Venture Capital Valuation Guidelines 2012. Lancashire County Pension Fund provides an additional voluntary The Fund’s loans and receivables comprise of trade and other contributions (AVC) scheme for its members, the assets of which receivables and cash deposits and are recognised in the net asset are invested separately from those of the Fund. The AVC providers Directly held property statement at amortised cost to the Pension Fund are Equitable Life and Prudential. AVCs are The Fund’s property portfolio includes directly owned properties paid to the AVC provider by employers and are specifically for Cash and cash equivalents which are leased commercially to various tenants. Under the providing additional benefits for individual contributors. Each AVC classifications permitted by IAS7 and the Code, the Fund has Cash comprises cash in hand and on demand deposits and includes contributor receives an annual statement showing the amount held determined that the tenant leases are operating leases. The risks amounts held by the Fund’s external managers. in their account and the movements in the year. and rewards of ownership of the properties remain with the Fund Cash equivalents are short-term, highly liquid investments that are AVCs are not included in the Pension Fund accounts in accordance and therefore the properties are retained on the net asset statement readily convertible to known amounts of cash and that are subject to with section 4(1) (b) of the Local Government Pension Scheme at fair value. Rental income is recognised in the fund account on a minimal risk of changes in value. (Management and Investment of Funds) Regulations 2016 but are straight line basis over the life of the lease. disclosed for information in note 18.
50 Lancashire County Pension Fund Annual Report 2018/19 51 H
NOTE 5 - ASSUMPTIONS MADE ABOUT THE FUTURE AND OTHER MAJOR SOURCES OF ESTIMATION UNCERTAINTY
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts. Estimates and assumptions are made taking into account historical experience, current trends and future expectations. The nature of estimation means that actual outcomes could be materially different from the assumptions and estimates.
The items in the net assets statement at 31 March 2019 for which there is a significant risk of material adjustment in the forthcoming year are set out in the following table.
Item Uncertainties Impact if actual results differ from assumptions
Private equity and Private equity and infrastructure investments The market value of private equity and infrastructure infrastructure investments are valued at fair value in accordance with the investments in the financial statements totals £1,796.5 m. International Private Equity and Venture Capital There is a risk that these investments might be under or Valuation Guidelines 2012 or equivalent. These overstated in the accounts. investments are not publicly listed and as such there is a degree of estimation involved in the valuation. Note 17 provides information on the sensitivity of the value of these investments to currency fluctuations, market and other price risks. Long-term credit Long-term credit investments are valued as the Fund’s The market value of long-term credit investments in the investments percentage share of the independently audited Net financial statements (excluding the investment in Heylo Asset Value of each individual strategy as provided by Housing Trust listed separately below) totals £1,134.1m. the relevant manager. In some cases the underlying There is a risk that these investments might be under or investments will be classified as level 3 investments, overstated in the accounts. Note 17 provides information on defined in note 16 as those investments for which the sensitivity of the value of these investments to currency valuation involves at least one input which is not fluctuations, market and other price risks. based on observable market data.
Loans secured on real The Heylo Housing Trust loans are held at the best The market value of housing authority loans to Heylo Housing assets estimate of market value. The value is based on long Trust totals £352.0m in the financial statements. There is a term expectations of interest rates, inflation and risk that this may be under or overstated. Note 17 provides credit spreads in the housing association sector. Exact information on the sensitivity of the value of these investments market benchmarks for these estimates may not be to currency fluctuations, market and other price risks. easily observable.
Indirect property Indirect properties are valued at the current open Indirect property investments in the financial statements total valuations market value as defined by the RICS Appraisal £124.0m There is a risk that these investments may be under and Valuation Standards. These investments are or overstated in the accounts. Note 17 provides information not publicly listed and as such there is a degree of on the sensitivity of the value of these investments to estimation involved in the valuation. currency fluctuations, market and other price risks.
Actuarial present value Estimation of the net liability to pay pensions depends The effects on the net pension liability of changes in of promised retirement on a number of complex judgements relating to the individual assumptions can be measured. For instance, a benefits discount rate used, the rate at which salaries are 0.25% reduction in the discount rate assumption would projected to increase, changes in retirement ages, increase the value of the liabilities by approximately £500m. mortality rates and expected returns on pension fund A 0.5% increase in assumed earnings inflation would assets. A firm of consulting actuaries (Mercer) is increase the value of the liabilities by approximately £185m engaged to provide the authority with expert advice and a 1 year increase in assumed life expectancy would about the assumptions to be applied. increase the liabilities by approximately £220m.
52 Lancashire County Pension Fund Annual Report 2018/19 53 H
NOTE 6 - CONTRIBUTIONS RECEIVABLE NOTE 8 - BENEFITS PAYABLE NOTE 10 - MANAGEMENT EXPENSES NOTE 11 - INVESTMENT INCOME
2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 £m By category £m £m By category £m £m £m £m £m 56.5 Members 58.7 213.6 Pensions 226.5 3.8 Fund administrative costs 3.7 3.3 Fixed interest securities 2.1 Employers: 35.1 Commutation and lump sum retirement 43.0 57.3 Investment management expenses1 71.7 0.8 Index linked securities - benefits 221.3 Normal contributions ¹ 96.8 1.3 Oversight and governance costs 1,2 0.9 103.4 Pooled investment vehicles 157.2 6.1 Lump sum death benefits 5.8 89.9 Deficit recovery contributions ¹ 11.4 62.4 76.3 2.2 Pooled property investments 1.7 254.8 275.3 7.2 Augmentation contributions ² 4.0 1 28.9 Net rents from properties 32.0 By type of employer £3.2m investment property management expenses have been reclassified 318.4 Total employers contributions 112.2 from oversight and governance costs to investment management expenses 0.1 Interest on cash deposits 0.5 107.1 County Council 116.4 in the 2017/18 comparatives. 374.9 Total contributions receivable 170.9 138.7 Total investment income 193.5 126.5 Scheduled bodies 137.5 2 By type of employer Oversight and governance costs above include external audit fees which 21.2 Admitted bodies 21.4 amounted to £34,169 (2017/18: £34,169). Additional fees of £10,500 174.9 County Council 1 57.8 254.8 275.3 were paid to the external auditor for IAS19 assurance work on behalf of 176.5 Scheduled bodies 1 93.1 Fund employers within the PSAA regime. 23.5 Admitted bodies 20.0 NOTE 12 - PROPERTY INCOME 374.9 170.9 NOTE 9 - PAYMENTS TO AND ON Investment management expenses ACCOUNT OF LEAVERS 1 Following the actuarial valuation in 2016, the Fund gave some 2017/18 2018/19 2017/18 2018/19 employers the option of paying their 3 year future service rate and deficit 2017/18 2018/19 £m £m £m £m contributions up front. A number of employers opted to do this and as a result the normal and deficit recovery contributions from the County £m £m 0.4 Transaction costs1 1.0 32.2 Rental income 36.7 Council and scheduled bodies for the year ended 31 March 2018 include 0.6 Refunds to members leaving service 0.6 45.0 Fund value based management fees 2 48.3 (3.3) Direct operating expenses (4.7) 3 years contributions from these employers, amounting to £218.0m 17.3 Individual transfers 15.8 0.3 Transition fees - 28.9 Net income 32.0 2 Augmentation contributions comprise additional pension benefits 11.5 Performance related fees3 22.4 awarded by employers to scheme members in line with the general 17.9 16.4 conditions of employment. 0.1 Custody fees - Within the employee contributions figure for 2018/19, £0.3m is 57.3 71.7 voluntary and additional regular contributions (2017/18: £0.4m). 1 Transaction costs are not directly invoiced to the Fund and are included within the net asset value of investments by investment managers. In NOTE 7 - TRANSFERS IN FROM OTHER accordance with CIPFA guidance these fees are identified and reported PENSION FUNDS through the Fund account. 2 Fund value based management fees include costs invoiced directly to the Fund by investment managers and fees accounted for by investment 2017/18 2018/19 managers within net asset value and recognised in the fund account in £m £m accordance with CIPFA guidance. Fees are charged as a percentage of the value of assets held by each manager. In addition to these costs, indirect 11.5 Individual transfers in from other schemes 11.0 costs are incurred through the bid-offer spread on investments sales and 11.5 11.0 purchases. These are reflected in the cost of investment acquisitions and in the proceeds from the sales of investments. 3 Performance related fees in the year ended 31 March 2018 included a non-recurring fee on global equities of £2.3m.
54 Lancashire County Pension Fund Annual Report 2018/19 55 H
NOTE 13 - RECONCILIATION OF MOVEMENTS IN INVESTMENTS AND DERIVATIVES
Market value as at Purchases Sales during the Change in value Market value as at Investments analysed by fund manager 1 April 2018 during the year year and derivative during the year 1 31 March 2019 and derivative receipts 31 March 2018 31 March 2019 payments £m % of net investment assets £m % of net investment assets £m £m £m £m £m Investments managed by LPPI Private Equity Fund Fixed interest securities 116.8 321.3 (329.1) 1.7 110.7 83.5 1.1% Capital Dynamics 75.9 0.9% Index linked securities 178.0 122.2 (3.1) (13.5) 283.6 37.1 0.5% HGGC 67.6 0.8% Pooled investment vehicles 6,321.5 507.0 (496.3) 711.0 7,043.2 22.1 0.3% Hermes GPE 38.5 0.5% Pooled property investments 113.3 8.3 2.4 124.0 26.1 0.3% Insight Venture Partners 38.0 0.5% Direct property 715.5 34.8 11.6 761.9 30.0 0.4% Permira 35.3 0.4% 7,445.1 993.6 (828.5) 713.2 8,323.4 32.1 0.4% Genstar Capital 33.6 0.4% Other investment balances: 10.0 0.1% Adveq TMC 25.7 0.3% Cash deposits 162.0 67.1 13.1 0.2% Colbeck Capital Management 23.4 0.3% Investment income due 3.1 3.9 17.4 0.2% BV Investment Partners 22.3 0.3% Net investment assets 7,610.2 8,394.4 15.1 0.2% Waterland 20.4 0.2% 1 £781.5m on the face of the Fund account includes the change in market value of investments disclosed above (£713.2), plus profits and losses on disposals 14.1 0.2% ECI Partners 18.8 0.2% and changes in the market value of investments held within the pools. 14.4 0.2% Mid Europa Partners 17.6 0.2% 15.1 0.2% CVC Capital Partners 17.2 0.2% Market value as at 1 Purchases at cost Sales proceeds and Change in market Market value as at 21.4 0.3% Nordic Capital 16.8 0.2% April 2017 and derivative derivative receipts value 1 31 March 2018 payments 15.2 0.2% Thoma Bravo 15.4 0.2% £m £m £m £m £m 9.6 0.1% CBPE Capital 14.8 0.2% Fixed interest securities 132.2 341.8 (351.3) (5.9) 116.8 10.0 0.1% Advent Life Sciences 14.0 0.2% Index linked securities 127.1 1,940.4 (1,889.4) (0.1) 178.0 16.5 0.2% Apax Partners 14.0 0.2% Pooled investment vehicles 6,136.7 1,956.1 (1,879.5) 108.2 6,321.5 16.1 0.2% Hg Capital 13.2 0.2% Pooled property investments 99.4 - (0.1) 14.0 113.3 10.8 0.1% Rutland Fund Management 12.5 0.2% Direct property 637.0 43.0 (17.9) 53.4 715.5 7.5 0.1% Endeavour Vision 12.0 0.1% 7,132.4 4,281.3 (4,138.2) 169.6 7,445.1 14.1 0.2% Ironbridge Equity Partners 11.3 0.1% Other investment balances: 13.2 0.2% SL Capital Partners 10.9 0.1% Cash deposits 56.3 162.0 6.3 0.1% NorthEdge Capital 9.9 0.1% Investment accruals 2.7 3.1 6.0 0.1% Advent Venture Partners 9.8 0.1% Net investment assets 7,191.4 7,610.2 9.9 0.1% Alpha Group 7.9 0.1% 6.1 0.1% Littlejohn & Co 6.5 0.1% 6.0 0.1% Advent International 5.7 0.1% 6.3 0.1% Triton Partners 5.7 0.1% 1 £221.9m on the face of the Fund account includes the change in market value of investments disclosed above (£169.6m), plus profits and losses on disposals and changes in the market value of derivatives held within the pools. 7.0 0.1% LPP internal managers 4.5 0.1% 6.5 0.1% Chequers Capital 3.6 -
56 Lancashire County Pension Fund Annual Report 2018/19 57 H
31 March 2018 31 March 2019 31 March 2018 31 March 2019 £m % of net investment assets £m % of net investment assets £m % of net investment assets £m % of net investment assets Investments managed by LPPI Private Equity Fund Credit investments managed outside of LPPI Credit Investments Fund 3.5 0.1% Charterhouse Capital Partners 3.4 - 198.3 2.6% Heylo Housing Trust 352.0 4.2% 4.4 0.1% Accent 3.0 - 138.0 1.8% CRC 111.5 1.3% - - True Capital 1.8 - 56.6 0.7% Neuberger Berman 52.1 0.6% - - MCP 1.6 - 48.3 0.6% Pimco Bravo 31.8 0.4% 1.8 - Abingworth Management 1.0 - 31.2 0.4% EQT 10.1 0.1% 0.8 - Private Equity Partners 0.8 - 18.8 0.3% Hayfin 5.6 0.1% 1.8 - EQT Partners 0.5 - 491.2 6.4% 563.1 6.7% 0.1 - Italian Capital Management 0.1 - Investments managed by LPPI Fixed Income Fund 531.0 7.0% 635.0 7.6% 92.0 1.2% PIMCO 157.6 1.9% Private equity investments managed outside of LPPI Private Equity Fund 91.8 1.2% Wellington 155.9 1.8% 16.7 0.2% Trilantic Capital Partners 15.4 0.2% - - LPPI internal managers 1.2 - 16.7 0.2% 15.4 0.2% 183.8 2.4% 314.7 3.7% Investments managed by LPPI Credit Investments Fund Liquid credit investments managed outside of LPPI Fixed Income Fund 200.4 2.6% Prima Mortgage Investment Trust LLC 180.6 2.2% 282.0 3.7% LPPI internal and LCC Treasury 181.6 2.1% 114.8 1.5% Bluebay 96.1 1.2% Management - - Robeco 87.4 1.0% 282.0 3.7% 181.6 2.1% 73.8 1.0% White Oak 78.8 0.9% Investments managed by LPPI Global Equities Fund - - Primerica 70.3 0.8% 1,306.2 17.2% LPPI internal managers 1,531.8 18.3% 84.3 1.1% Apollo 67.1 0.8% 482.5 6.3% Magellan 551.1 6.6% 61.9 0.8% Venn Commercial Real Estate 66.7 0.8% 469.0 6.2% Robeco 548.8 6.5% 67.2 0.9% King Street 59.2 0.7% 466.7 6.1% First Eagle 540.4 6.4% 64.5 0.9% Permira 49.3 0.6% 315.1 4.1% Wellington 368.6 4.4% 51.7 0.7% Monarch 47.1 0.6% 174.9 2.3% Baron 188.2 2.2% 38.5 0.5% M&G 32.3 0.4% - - MFS 0.5 - 37.2 0.5% MFO King Street 29.3 0.3% - - Macquarie 0.2 - 35.7 0.5% Kreos 26.7 0.3% 3,214.4 42.2% 3,729.6 44.4% 10.4 0.1% Muzinich Private Debt Fund 13.5 0.1% Investments managed by LPPI Infrastructure Investments Fund 14.4 0.2% Blackrock 6.6 0.1% 84.2 1.1% GLIL Infrastructure LLP 266.9 3.2% 8.5 0.1% Westmill 6.6 0.1% 95.0 1.2% Guild Investments Limited 105.4 1.3% 79.7 1.0% LPPI internal managers 5.4 0.1% 111.4 1.5% Elisandra Spain 102.1 1.2% 128.1 1.7% Pictet - - 79.5 1.0% Semperian PPP 93.6 1.1% 1,071.1 14.1% 923.0 11.0% 44.8 0.6% ISquared Global Infrastructure 56.7 0.7%
58 Lancashire County Pension Fund Annual Report 2018/19 59 H
31 March 2018 31 March 2019 £m % of net investment assets £m % of net investment assets Investments managed by LPPI Infrastructure Investments Fund 47.2 0.6% Global Infrastructure Partners 54.3 0.5% 61.6 0.8% Cape Byron Infrastructure 41.6 0.5% 34.2 0.5% Meridiam Infrastructure 41.6 0.5% 30.8 0.4% ISQ Viridian 34.6 0.4% 32.7 0.4% EQT Infrastructure 31.8 0.4% 35.6 0.5% LPPI internal managers 29.9 0.4% 24.9 0.3% Capital Dynamics 27.8 0.4% 20.7 0.3% Stonepeak Infrastructure 24.2 0.3% 15.5 0.2% Glennmont 9.0 0.1% 6.3 0.1% Icon Infrastructure Partners 6.9 0.1% 3.0 0.1% Stonepeak Claremont 3.9 - 727.4 9.6% 930.3 11.1 % Infrastructure investments managed outside of LPPI Infrastructure Investments Fund 104.6 1.4% Arclight Energy 103.2 1.2% 77.1 1.0% Icon Infrastructure Partners 55.6 0.7% 49.4 0.7% Highstar Capital 31.5 0.4% 32.7 0.4% Capital Dynamics Red Rose 25.5 0.3% 263.8 3.5% 215.8 2.6% Property 715.5 9.4% Knight Frank 761.9 9.1% 46.0 0.6% M&G Europe fund 47.9 0.6% 39.0 0.5% Gatefold Hayes 40.3 0.5% 28.3 0.4% Kames Target 28.3 0.3% - - BaseCamp Real Estate Partners Ltd 7.4 0.1% 828.8 10.9% 885.9 10.6% 7,610.2 100.0% 8,394.4 100.0%
60 Lancashire County Pension Fund Annual Report 2018/19 61 H
The following individual investments represent over 5% of the net assets of the fund. Direct property investments Operating leases
The Fund leases out property under operating leases. The table 31 March 2018 31 March 2019 31 March 2018 31 March 2019 shows the future minimum lease payments receivable under non- £m % of total fund £m % of total fund £m £m cancellable leases in future years. 3,214.4 42.2% LPPI Global Equity Fund 3,729.6 44.4% 601.8 UK – freehold 624.8 2017/18 2018/19 727.4 9.6% LPPI Infrastructure Fund 930.3 11.1% 113.7 UK – long leasehold 137.1 £m £m 1,071.1 14.1% LPPI Credit Strategies Fund 923.0 11.0% 715.5 761.9 29.3 Leases expiring within one year 36.3 531.0 7.0% LPPI Private Equity Fund 635.0 7.6% 81.1 Leases expiring between one and 109.8 Property holdings five years 126.1 Leases expiring later than five years 112.2 Fixed interest securities Pooled investment vehicles The Fund’s investment in property comprises of investments in pooled property funds along with a number of directly owned 236.5 Total future minimum lease 258.3 properties which are leased commercially to various tenants. 31 March 2018 31 March 2019 31 March 2018 31 March 2019 payments receivable under Details of these directly owned properties are shown in the table. existing non-cancellable leases £m £m £m UK funds: £m 32.5 UK corporate bonds quoted 63.8 183.8 Fixed income funds 314.7 31 March 2018 31 March 2019 The above disclosures have been reduced by a credit loss allowance 14.2 Overseas public sector 12.0 108.2 Private equity 137.0 £m £m of 2.1 % per annum reflecting the Fund’s expected loss from late 637.0 Opening balance 715.5 or non-recovery of rents from tenants. This has been based on 70.1 Overseas corporate bonds 34.9 760.1 Infrastructure 955.8 the Fund’s own historic experience but also information on similar quoted 1,110.3 Long term credit investments 997.0 Additions: properties received from the Fund’s property management agents. 116.8 110.7 There are no contingent rents as all rents are fixed until the next 67.3 Property funds 68.6 18.3 • Purchases 3.4 rent review (generally on 5 year review patterns) and then are either Overseas funds: 15.5 • New construction 31.2 reviewed to market rent, a fixed uplift or in line with an index. The Index linked securities 9.2 • Subsequent expenditure 0.9 income is contractually secured against a wide range of tenants who 242.8 Fixed income funds 195.3 in turn operate in a range of market sectors. Income is generally 31 March 2018 31 March 2019 439.5 Private equity 513.4 (17.9) Disposals - reviewed to market rent five yearly, and there is also an element of the portfolio income that is indexed or has fixed uplifts (generally 53.4 Net increase in market value 10.9 £m £m 231.1 Infrastructure 190.3 being in the range of 2-4% per annum). The portfolio also features 178.0 UK quoted 283.6 31.2 Long term credit investments 10.1 715.5 Closing balance 761.9 a number of vacant properties for which the future income depends on the terms agreed by tenants, and the investment manager is 178.0 283.6 3,214.4 Equity funds1 3,729.6 working with property managers to fill these voids. 46.0 Property funds 55.4 Cash deposits 6,434.7 7,167.2 31 March 2018 31 March 2019 £m £m 1 Equity funds are held in the LPPI Global Equity Fund which includes 109.1 Sterling 43.5 UK equities. 52.9 Foreign currency 23.6 162.0 67.1
62 Lancashire County Pension Fund Annual Report 2018/19 63 H
NOTE 14 - FINANCIAL INSTRUMENTS CLASSIFICATION
The following table analyses the carrying amounts of financial assets and liabilities by category and net asset statement heading. Directly held property is excluded from this note.
31 March 2019 31 March 2018
Fair value Loans and Financial Fair value Loans and Financial through receivables liabilities at through receivables liabilities at profit or loss at amortised amortised profit or loss at amortised amortised cost cost cost cost £m £m £m £m £m £m Financial assets Financial assets Fixed interest 110.7 Fixed interest 116.8 securities securities Index linked 283.6 Index linked 178.0 securities securities Pooled investment 7,043.2 Pooled investment 6,321.5 vehicles vehicles Pooled property 124.0 Pooled property 113.3 investments investments Cash deposits 67.1 Cash deposits 162.0 Investment accruals 3.9 Investment accruals 3.1 Debtors 22.0 Debtors 23.5 Total financial 7,565.4 89.1 Total financial 6,732.7 185.5 assets assets Financial Financial liabilities liabilities Creditors 6.3 Creditors 12.4 Total financial 6.3 Total financial 12.4 liabilities liabilities
NOTE 15 - NET GAINS AND LOSSES ON FINANCIAL INSTRUMENTS
The net gain on financial assets at fair value through profit and loss was £781.5m (2017/18: £221.9m) after adjusting for directly owned property.
64 Lancashire County Pension Fund Annual Report 2018/19 65 H
NOTE 16 - FINANCIAL INSTRUMENTS – FAIR VALUE HIERARCHY
Valuation of financial instruments carried at Level 3 31 March 2019 fair value Level 3 portfolios are those where at least one input which could The valuation of financial instruments has been classified into three have a significant effect on the instrument’s valuation is not based on Quoted market Using observable With significant Total levels according to the quality and reliability of information used to observable market data. Such instruments include overseas quoted price inputs unobservable inputs determine fair values. Transfers between levels are recognised in the fixed income investments, pooled UK fixed income investments, Level 1 Level 2 Level 3 year in which they occur. private equity, infrastructure and indirect overseas property £m £m £m £m investments, which are valued using various valuation techniques
that require significant management judgement in determining Financial assets at fair value through 4,155.9 - 3,409.5 7,565.4 Level 1 appropriate assumptions, including earnings, public market profit and loss Level 1 fair value measurements are those derived from unadjusted comparatives and estimated future cash flows. Loans and receivables 67.1 - - 67.1 quoted prices in active markets for identical assets or liabilities. The values of the investment in private equity and infrastructure are Non-financial assets at fair value - 761.9 - 761.9 Examples include quoted equity investments, including those held based on valuations provided to the private equity and infrastructure through profit and loss (property in the LPPI Global Equity Fund, unit trusts, UK pooled fixed income funds in which Lancashire County Pension Fund has invested. holdings) funds, overseas pooled fixed income funds, UK and overseas quoted These valuations are prepared in accordance with the International fixed interest securities. Listed investments are shown at bid prices. Private Equity and Venture Capital Valuation Guidelines or Net investment assets 4,223.0 761.9 3,409.5 8,394.4 The bid value of the investment is based on the bid market quotation equivalent, which follow the valuation principles of IFRS and US of the relevant stock exchange. GAAP. Valuations are performed annually mainly, and at the end of December. Cash flow adjustments are used to roll forward the valuations to 31 March as appropriate. 31 March 2018 Level 2 The value of the overseas indirect property fund investment is Level 2 investments are those where quoted market prices are not based on valuations provided to the overseas indirect property Quoted market Using observable With significant Total available, for example where an instrument is traded in a market that fund in which Lancashire County Pension Fund has invested. These price inputs unobservable inputs is not considered to be active or valuation techniques are used to valuations are at the current open market value, as defined by the Level 1 Level 2 Level 3 determine fair value and where these techniques use inputs that are RICS Appraisal and Valuation Standards. These valuations are £m £m £m £m based significantly on observable market data. Such instruments performed monthly. include bonds secured on affordable housing assets. The technique Financial assets at fair value through 3,399.4 116.9 3,216.4 6,732.7 for valuing these assets is independently verified. profit and loss Fair value hierarchy The bonds secured on affordable housing assets are based on long Loans and receivables 162.0 - - 162.0 term expectations of interest rates, inflation and credit spreads in the The following table provides an analysis of the financial assets and housing association sector. liabilities of the Fund grouped into level 1 to 3 based on the level Non-financial assets at fair value - 715.5 - 715.5 of which the fair value is observable. Loans and receivables are through profit and loss (property excluded from this table as they are held at amortised cost. holdings)
Net investment assets 3,561.4 832.4 3,216.4 7,610.2
66 Lancashire County Pension Fund Annual Report 2018/19 67 H
Basis of valuation Sensitivity of assets valued at level 3
Description of asset Valuation Basis of valuation Observable and unobservable Key sensitivities affecting the Having consulted with the Fund’s independent investment advisors, set out below the consequent potential impact on the closing value hierarchy inputs valuations provided the Fund has determined that the valuation methods described of investments held at 31 March 2019. above are likely to be accurate to within the following ranges, and has Pooled global equities Level 1 Unadjusted quoted bid market Not required. Not required. prices. Description of asset Assessed valuation range1 Value at 31 March 2019 Value on increase Value on decrease Fixed income funds Level 1 Unadjusted market values based Not required. Not required. (+/-) £m £m £m on current yields. Fixed income funds - 198.2 198.2 198.2 Corporate and overseas Level 2 Market approach – active ‘over the Corroborative indicative quotes, Not required. Private equity funds 7.7% 650.3 700.4 600.2 government bonds counter’ markets interest rates, inflation. Infrastructure funds 7.7% 1,146.1 1,234.3 1,057.9 Direct property holdings Level 2 Valuation performed by Comparable recent market Not required. independent professional valuers transactions on arm’s length terms; Long term credit excluding 7.7% 1,007.3 1,084.9 929.7 Avison Young in accordance general changes in property market index linked with Royal Institute of Chartered prices; rental growth; vacant Index linked long term credit - 283.6 283.6 283.6 Surveyor’s (RICS) Valuation properties ;existing lease terms; Standards (9th edition). nature of tenancies, Pooled property investments 4.0% 124.0 129.0 119.0
Pooled property Level 3 Current open market value in Unobservable fund net asset value. Ability to exit fund; market opinion; Level 3 investments 3,409.5 3,630.4 3,188.6 investments accordance with RICS Appraisal general market movements. 1 All movements in the assessed valuation range derive from changes in the underlying and Valuation Standards. profitability of component companies and investments. Private equity, long term Level 3 Annually at fair value in Discount rates, cash flow Material events occurring between credit and infrastructure accordance with International projections. the date of the financial statements investments Private Equity and Venture Capital provided and the pension fund’s Reconciliation of fair value measurements within level 3 Valuation Guidelines 2012 or own reporting date; changes to equivalent. expected cash flows; differences Fixed income Private equity Infrastructure Long term Property funds Total level 3 between audited and unaudited funds funds credit investments accounts investments
£m £m £m £m £m £m Market value 1 April 2018 244.8 547.7 991.2 1,319.4 113.3 3,216.4 Purchases during the year and - 125.4 191.4 122.7 8.3 447.8 derivative payments Sales during the year and (62.8) (124.9) (90.7) (221.0) - (499.4) derivative receipts Unrealised gains / losses 3.1 40.9 4.0 41.3 2.4 91.7 Realised gains / losses 13.1 61.2 50.2 28.5 - 153.0 Market value 31 March 2019 198.2 650.3 1,146.1 1,290.9 124.0 3,409.5
68 Lancashire County Pension Fund Annual Report 2018/19 69 H
NOTE 17 - NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS
Risk and risk management Market risk Other price risk Other price risk – Asset type Potential market movements (+/-) The Fund’s primary long-term risk is that the Market risk is risk of loss from fluctuations in Other price risk represents the risk that the sensitivity analysis Total bonds (including index linked) 6.7% Fund’s assets will fall short of its liabilities equity and commodity prices, interest and value of a financial instrument will fluctuate Following analysis of historical data and (i.e. promised benefits payable to members). foreign exchange rates and credit spreads. as a result of changes in market prices (other expected investment return movement Total equities 9.8% The aim of investment risk management is The Fund is exposed to market risk from its than those arising from interest rate risk during the financial year, in consultation Alternatives 7.7% to balance the minimisation of the risk of an investment activities, particularly through its or foreign exchange risk), whether those with the Fund's investment advisors, the overall reduction in the value of the Fund equity holdings. changes are caused by factors specific to the Fund has determined that the following Total property 4.0% with maximising the opportunity for gains The objective of the Fund’s risk management individual instrument or its issuer or factors movements in market price risks are across the whole Fund portfolio. The Fund strategy is to identify, manage and keep affecting all such instruments in the market. reasonably possible for the 2018/19 achieves this through asset diversification to market risk exposure within acceptable The Fund is exposed to share and derivatives reporting period. Asset type 31 March 2019 Potential market Potential value Potential value reduce exposure to market risk (price risk, parameters, whilst optimising the return on price risk. This arises from investments held movements (+/-) on increase on decrease currency risk and interest rate risk) and keep The sensitivities are consistent with the risk. by the Fund for which the future price is assumption contained in the investment credit risk to an acceptable level. In addition, uncertain. All securities investments present £m % £m £m the Fund manages its liquidity risk to ensure In general, excessive volatility in market risk advisors’ most recent review. This analysis a risk of loss of capital. Investment portfolio assets: there is sufficient liquidity to meet the Fund’s is managed through the diversification of assumes that all other variables, in particular forecast cash flow. the portfolio in terms of geographical and The Fund’s investment managers mitigate foreign currency exchange rates and interest Total equities 4,380.0 9.8% 4,807.4 3,952.5 industry sectors and individual securities. this price risk through diversification. The rates, remain the same. Had the market of Responsibility for the Fund’s risk To mitigate market risk, the Fund and its selection of securities and other financial the Fund’s investments increased/decreased Alternatives 2,946.8 7.7% 3,173.7 2,720.0 management strategy rests with the Pension investment advisors undertake appropriate instruments is monitored by the Fund to in line with the above, the change in the net Fund Committee. Risk management policies monitoring of market conditions and ensure it is within limits specified in the fund assets available to pay benefits in the market Total property 886.0 4.0% 921.5 850.6 are established to identify and analyse the benchmarking analysis. investment strategy. place would have been as follows (the prior Total bonds 110.6 6.7% 118.0 103.2 risks faced by the Fund’s operations. Policies year comparator is also shown): (including index are reviewed regularly to reflect change in linked) activity and in market conditions. Total assets 8,323.4 9,020.6 7,626.3 available to pay benefits
Asset type 31 March 2018 Potential market Potential value Potential value movements (+/-) on increase on decrease £m % £m £m Investment portfolio assets: Total bonds 132.7 7.2% 142.3 123.1 (including index linked) Total equities 3,762.1 9.6% 4,123.3 3,400.9 Alternatives 2,721.5 7.4% 2,922.9 2,520.1 Total property 828.8 3.9% 861.1 796.5 Total assets 7,445.1 8,049.6 6,840.6 available to pay benefits
70 Lancashire County Pension Fund Annual Report 2018/19 71 H
Interest rate risk Currency risk The following table summarises the Fund’s currency exposure as at 31 March 2019 and as at the previous year end. The Fund invests in financial assets for the 31 March 2018 Asset type 31 March 2019 Currency risk represents the risk that the primary purpose of obtaining a return on fair value cash flow of a financial instrument investments. These investments are subject £m £m will fluctuate because of changes in foreign 31 March 2018 Currency exposure – asset type 31 March 2019 to interest rate risks, which represent the exchange rates. The Fund is exposed to 162.0 Cash and cash equivalents 67.1 £m £m risks that the fair value of future cash flow of currency risk on financial instruments that a financial instrument will fluctuate because 162.0 Total 67.1 are denominated in any currency other than 3,653.8 Overseas equities 4,243.0 of changes in market interest rates. the functional currency of the Fund (£). 505.2 Overseas alternatives 395.7 The Fund's interest rate risk is routinely The Fund holds both monetary and non- monitored by the Investment Panel and monetary assets denominated in currencies 46.0 Overseas property 55.4 its investment advisors. The Fund's direct other than £. 84.3 Overseas bonds (including index linked) 46.9 exposure to interest rate movements as at The Fund’s currency rate risk is routinely 31 March 2019 and 31 March 2018 is set out monitored by the Fund and its investment 4,289.3 Total overseas assets 4,741.0 below. These disclosures present interest advisors in accordance with the Fund’s risk rate risk based on the underlying financial management strategy. assets at fair value.
Currency risk - sensitivity Currency exposure - Asset value at Potential market Value on Value on The Fund has recognised that interest Impact of analysis asset type 31 March 2019 movement increase decrease rates can vary and can affect both income to the Fund and the value of the net 31 March 2019 1% increase 1% decrease Following analysis of historical data in +/- 8.0% assets available to pay benefits. A 100 consultation with the Fund’s investment £m £m £m £m Asset type £m £m £m advisors, the Fund considers the likely basis point (BPS) movement in interest Overseas equities 4,243.0 341.1 4,584.1 3,901.9 rates is consistent with the level of Cash and cash equivalents 67.1 0.7 (0.7) volatility associated with foreign exchange sensitivity applied as part of the Fund’s risk rate movement to be 8.0%. Overseas alternatives 395.7 31.8 427.5 363.9 management strategy (1BPS = 0.01%). The Total change in assets available 0.7 (0.7) An 8.0% fluctuation in the currency is Fund’s investment advisor has advised that considered reasonable based on the Fund Overseas property 55.4 4.5 59.9 50.9 long–term average rates are expected to Impact of advisor’s analysis of long-term historical Overseas bonds 46.9 3.8 50.7 43.1 move less than 100 basis points for one year movements in the month-end exchange (including index linked) to the next and experience suggests that 31 March 2018 1% increase 1% decrease rates over a rolling 36-month period. This such movements are likely. analysis assumes that all other variables, in Total assets available to 4,741.0 381.2 5,122.2 4,359.8 Asset type £m £m £m pay benefits The analysis that follows assumes that all particular interest rates, remain constant other variables, in particular exchange rates, Cash and cash equivalents 162.0 1.6 (1.6) (2017/18: 8.5%). remain constant, and shows the effect in Total change in assets available 1.6 (1.6) An 8.0% strengthening/weakening of the Currency exposure - Asset value Potential market Value on Value on the year on the net assets available to pay pound against the various currencies in asset type at 31 March movement increase decrease benefits of a +/- 1% change in interest rates: which the Fund holds investments would 2018 +/- 8.5% increase/decrease the net assets available to £m £m £m £m pay benefits as follows: Overseas bonds 84.3 7.2 91.5 77.1 (including index linked) Overseas equities 3,653.8 310.6 3,964.4 3,343.2 Overseas alternatives 505.2 42.9 548.1 462.3 Overseas property 46.0 3.9 49.9 42.1 Total assets available to 4,289.3 364.6 4,653.9 3,924.7 pay benefits
72 Lancashire County Pension Fund Annual Report 2018/19 73 H
NOTE 18 - ADDITIONAL VOLUNTARY CONTRIBUTIONS (AVC)
Credit risk counterparty default. The residual risk Liquidity risk Equitable Life Prudential Total Members participating in AVC is minimal due to the various insurance arrangements each receive an annual Credit risk represents the risk that the Liquidity risk represents the risk that the £m £m £m counterparty to a transaction or a financial policies held by the exchanges to cover Fund will not be able to meet its financial statement confirming the amounts held in Value at start of the year 0.7 27.3 28.0 instrument will fail to discharge an obliga- defaulting counterparties. Credit risk on obligations as they fall due. The Fund their account and the movements during tion and cause the Fund to incur financial over-the-counter derivatives contracts is therefore takes steps to ensure that there Income (incl. contributions, 0.0 5.9 5.9 the year. A summary of the information loss. The market values of investments gen- minimised as counterparties are recognised are adequate cash resources to meet its bonuses, interest and transfers in) provided by Equitable Life and Prudential erally reflect an assessment of credit in their financial intermediaries with acceptable commitments. The Fund has immediate is shown below. (This summary has not pricing and consequently the risk of loss is credit ratings determined by a recognised access to its cash holdings. Expenditure (incl. benefits, transfers (0.1) (4.2) (4.3) been subject to Audit and the Pension implicitly provided for in the carrying value rating agency. out and change in market value) Fund relies on the individual contributors Management prepares periodic cash flow to check deductions made on their behalf of the Fund’s financial asset and liabilities. Deposits are not made with banks and forecasts to understand and manage Value at the end of the year 0.6 29.0 29.6 In essence the Fund’s entire investment financial institutions unless they are rated are accurately reflected in the statements the timing of the Fund’s cash flow. The provided by the AVC providers). The portfolio is exposed to some form of credit independent and meet the Fund’s credit appropriate strategic level of cash balances risk, with the exception of the derivatives criteria. The Fund has also set limits as to figures relate to the financial year 1 April to be held forms part of the Funds 2018 to 31 March 2019 for Prudential positions, where the risk equates to the the maximum percentage of the deposits investment strategy. net market value of a positive derivative placed with any class of financial institution. NOTE 19 - CURRENT ASSETS and 1 September 2017 to 31 August The Fund has financial liabilities of £6.3m 2018 for Equitable Life and are not position. However, the selection of high The Fund’s cash holding under its treasury quality counterparties, brokers and financial at 31 March 2019, all of which is due within included in the Pension Fund accounts in management arrangements at 31 March one year. 31 March 2018 31 March 2019 accordance with Regulation 4(1) (b) of institutions minimise the credit risk that 2019 was £67.1m (31 March 2018: may occur through the failure to settle a £m £m the Local Government Pension Scheme £162.0m) and was held with the following (Management and Investment of Funds) transaction in a timely manner. 7.7 Contributions due – employers 8.0 institutions: Regulations 2016 Contractual credit risk is represented by 6.3 Contributions due – members 4.9 the net payment or receipts that remain 9.4 Sundry debtors 9.1 outstanding, and the cost of replacing the derivatives position in the event of a 23.4 22.0
31 March 2018 Summary Rating 31 March 2019 £m £m Bank deposit accounts NOTE 20 – CURRENT LIABILITIES 154.5 Northern Trust A+ 58.3 31 March 2018 31 March 2019 7.5 Svenska Handelsbanken A+ 7.6 £m £m Cash float with property manager 1.6 Unpaid benefits 0.8 - Barclays Bank Plc A- 1.2 10.8 Accrued expenses 5.5 162.0 Total 67.1 12.4 6.3
74 Lancashire County Pension Fund Annual Report 2018/19 75 H
NOTE 21 - CONTRACTUAL NOTE 22 - RELATED PARTY NOTE 23 - KEY MANAGEMENT PERSONNEL COMMITMENTS TRANSACTIONS
As at 31 March 2019 the commitments In accordance with IFRS, the financial to cover investment management charges, The key management personnel of the Fund are the Lancashire County relating to outstanding call payments due statements must contain the disclosures scheme administration expenses, employer Council Chief Executive and Director of Resources, the Lancashire to unquoted limited partnership funds held necessary to draw attention to the risk services and liability modelling. County Council Director of Finance and the Head of Fund. in the private equity and infrastructure part possibility that the reported financial Payments made for the year to 31 March of the portfolio totalled £566.2m (2018: position of the Pension Fund may have been 2019 amount to £5.5m (2017/18: £6.8m). Total remuneration payable to key management personnel is set out below: £546.6m). The amounts ‘called’ by these affected by the existence of related parties Employers within the Fund funds are irregular in both size and timing and associated material transactions. Employers are related parties in so far 2018/19 and commitments to these partnerships are There are three groups of related parties; as they pay contributions to the Fund in drawn down over a number of years. The transactions between Lancashire County accordance with the appropriate Local Employment period Salary¹ Employer Pension Total including pension term of a fund investment is typically 10 Council as administering authority and the Government Pension Scheme Regulations contributions1 contributions¹ years. Realisation of these investments in Fund; between employers within the Fund (LGPS). Contributions for the year are the form of distributions normally occurs and the Fund; and between members and £ £ £ shown in note 6 and in respect of March in the second half of the fund life, when senior officers and the Fund. portfolio companies have built value and 2019 payroll, are included within the Head of Fund 01/04/18 – 31/03/19 56,667 8,557 65,224 Lancashire County Council debtors figure in note 19. can be sold. Director of Finance 01/04/18 – 31/03/19 1,938 293 2,231 The Lancashire County Pension Fund Pension Fund Committee, is administered by Lancashire County Chief Executive and Director of Resources 01/04/18 – 31/03/19 4,029 - 4,029 Commitments to outstanding call payments Pensions Board and Senior Council. for credit strategies stood at £190.9m Officers. 1 The remuneration amount has been apportioned to the Fund on the basis of time spent on Fund work. (2018: £462.4m). The majority of these The Council incurred costs of £0.5m The Pension Fund Committee, Pensions (2017/18: £0.6m) in relation to the amounts are expected to be called over Board members and senior officers of the 2017/18 the coming two years and relate to various administration of the Fund. This includes Pension Fund were asked to complete different investments including direct a proportion of relevant officers’ salaries a related party declaration for 2018/19 Employment period Salary¹ Employer Pension Total including pension lending and distressed credit opportunities in respect of time allocated to pension regarding membership of, and transactions contributions1 contributions¹ which are expected to begin repaying capital and investment issues. The Council was with such persons or their related parties. after 5 years. In order to maintain a steady subsequently reimbursed by the Fund for No related party transactions were £ £ £ level of investment in the long term, the these expenses. identified during the year to 31 March 2019. Fund will enter into further commitments to Head of Fund 01/04/17 – 31/03/18 54,699 8,228 62,927 The Council is also the single largest Each member of the Pension Fund fund this type of strategy over the coming employer of the members of the Pension Committee and Pension Board formally Director of Financial Resources / Finance³ 01/04/17 – 31/03/18 4,653 703 5,356 years. Fund and contributed £32.6m to the Fund considers conflicts of interest at each Chief Executive and Director of Resources ² 03/01/18 – 31/03/18 874 - 874 in 2018/19. A contribution prepayment of meeting. £118m was received in 2017/18 for the years The commitments on direct property ending 31 March 2018, 2019 and 2020. 1 The remuneration amount has been apportioned to the Fund on the basis of time spent on Fund work. development contracts relating to Total employer contributions from the 2 properties under construction held in The Chief Executive and Director of Resources was a new post and was appointed on 3 January 2018. Council in 2017/18 amounted to £152m. the direct property part of the portfolio 3 All monies owing to and due from the Fund Following a restructure the role of Director of Financial Resources was replaced with Director of Finance during the year ended 31 March 2018. totalled £21.9m (2018: £47.3m). These were paid in year. amounts are expected to be drawn down over the next 6 months based on valuation Lancashire County Council is a shareholder certificates. in the Local Pensions Partnership (LPP), having an ownership in the company During the year, the Fund has invested in an equal to that of the London Pension Fund indirect real estate fund with an outstanding Authority. LPP manages the investment and commitment of £22.0m as at 31 March administration functions of the Fund and 2019(2018: £0m). the Fund makes regular payments to LPP
76 Lancashire County Pension Fund Annual Report 2018/19 77 H
NOTE 24 - FUNDING ARRANGEMENTS
Accounts for the year ended 31 March 2019 - rate will increase at 3.7% per annum. Finally, some employers have Actuarial Present Value of Promised also increased the liabilities by c£72 million (after allowing for Statement by the Consulting Actuary opted to prepay their contributions, either on an annual basis each Retirement Benefits for the Purposes of any increase in liabilities arising as a result of early retirements/ April or by paying all 3 years’ contributions in April 2017. In each augmentations). We have also included an amount of £64 million This statement has been provided to meet the requirements under IAS 26 case, that contribution is reduced to reflect its earlier payment. by way of an estimate of the effect of the McCloud judgement (see Regulation 57(1)(d) of The Local Government Pension Scheme IAS 26 requires the present value of the Fund’s promised retirement note below for further details). There was an increase in liabilities of Regulations 2013. Further details regarding the results of the valuation are contained in benefits to be disclosed, and for this purpose the actuarial the formal report on the actuarial valuation dated 31 March 2017. £568 million due to “actuarial losses” (i.e. the effect of changes in An actuarial valuation of the Lancashire County Pension Fund was assumptions and methodology used should be based on IAS 19 the actuarial assumptions used, referred to above). carried out as at 31 March 2016 to determine the contribution rates In practice, each individual employer’s position is assessed rather than the assumptions and methodology used for funding The net effect of all the above is that the estimated total value of the with effect from 1 April 2017 to 31 March 2020. separately and the contributions required are set out in the report. purposes. In addition to the certified contribution rates, payments to cover Fund’s promised retirement benefits as at 31 March 2019 is therefore On the basis of the assumptions adopted, the Fund’s assets of To assess the value of the benefits on this basis, we have used the additional liabilities arising from early retirements (other than ill- £10,987 million. £6,036 million represented 90% of the Fund’s past service liabilities following financial assumptions as at 31 March 2019 (the 31 March health retirements) will be made to the Fund by the employers. of £6,726 million (the “Funding Target”) at the valuation date. The 2018 assumptions are included for comparison): deficit at the valuation was therefore £690 million. The funding plan adopted in assessing the contributions for each The McCloud Case individual employer is in accordance with the Funding Strategy 31 March 2018 31 March 2019 In December 2018 the Court of Appeal ruled against the Statement (FSS). Any different approaches adopted, e.g. with Rate of return on investments 2.6% per annum 2.4% per 8000 Government in the two linked cases of Sargeant and McCloud regard to the implementation of contribution increases and deficit (discount rate) annum 7000 £6,726m (which for the purposes of the LGPS has generally been shortened £6,036m recovery periods, are as determined through the FSS consultation Rate of CPI Inflation / CARE 2.1% per annum 2.2% per to “McCloud”), relating to the Firefighter unfunded pension 6000 process. (£m) 5000 Benefit revaluation annum schemes and the Judicial pension arrangements. In essence, the The valuation was carried out using the projected unit actuarial 4000 Rate of pay increases* 3.6% per annum 3.7% per annum Court held that the transitional protections, which were afforded method and the main actuarial assumptions used for assessing the to older members when the reformed schemes were introduced in 3000 Funding Target and the Primary rate of contribution were as follows: Rate of increases in pensions in 2.2% per annum 2.3% per 2015, constituted unlawful age discrimination. The Government 2000 payment (in excess of Guaranteed annum attempted to appeal the cases, but it was announced on 27 June 1000 £690m Minimum Pension) / Deferred 2019 that the appeal had been refused by the Supreme Court. For past service For future service 0 revaluation Remedial action in the form of increases in benefits for some liabilities liabilities (Primary Deficit Assets members of the Firefighter and Judicial arrangements will almost
Liabilities (Funding rate of contribution) * includes a corresponding allowance to that made in the latest certainly be required. There may well also be knock-on effects for Target) formal actuarial valuation for short-term public sector pay restraint. the other public service schemes, and the LGPS might therefore also The valuation also showed that a Primary contribution rate of be required to take some action. At this stage it is uncertain whether 14.9% of pensionable pay per annum was required from employers. Rate of return on 4.4% 4.95% investments (discount rate) per annum per annum remedial action will be required, nor is it clear what the extent of any The Primary rate is calculated as being sufficient, together with The demographic assumptions are the same as those used for potential remedial action might be. contributions paid by members, to meet all liabilities arising in Rate of pay increases (long 3.7% 3.7% funding purposes. Full details of these assumptions are set out in the respect of service after the valuation date. formal report on the actuarial valuation dated March 2017.During We have carried out some costings of the potential effect of term)* per annum per annum McCloud as at 31 March 2019, based on the individual member data The funding objective as set out in the Funding Strategy Statement the year, corporate bond yields decreased slightly, resulting in a Rate of increases in 2.2% 2.2% lower discount rate being used for IAS 26 purposes at the year-end as supplied to us for the 2016 actuarial valuation, and this results in (FSS) is to achieve and then maintain a solvency funding level of an additional liability of £64 million using the IAS26 assumptions 100% of liabilities (the solvency funding target). In line with the pensions in payment (in per annum per annum than at the beginning of the year (2.4% p.a. versus 2.6% p.a.). The excess of Guaranteed expected rate of long-term rate of CPI inflation increased during outlined above. The approach to the calculations is as instructed FSS, where a shortfall exists at the effective date of the valuation a by the administering authority after consideration of the categories deficit recovery plan will be put in place which requires additional Minimum Pension) the year, from 2.1% p.a. to 2.2%. Both of these factors served to increase the liabilities over the year. of members potentially affected, but in very broad terms calculates contributions to correct the shortfall (or contribution reductions to the cost of applying a “final salary underpin” (on a member by refund any surplus). * allowance was also made for short-term public sector pay restraint over a The value of the Fund’s promised retirement benefits for the member basis) to those active members who joined the Fund before The FSS sets out the process for determining the recovery plan in 4-year period. purposes of IAS 26 as at 31 March 2018 was estimated as £10,022 1 April 2012 and who would not otherwise have benefited from the respect of each employer. At this actuarial valuation the average million. Interest over the year increased the liabilities by c£261 underpin. deficit recovery period is 16 years, and the total initial recovery The assets were assessed at market value. million, and allowing for net benefits accrued/paid over the period payment (the “Secondary rate”) for 2019/20 is approximately The next triennial actuarial valuation of the Fund is due as at 31 £46 million. The Secondary rate of the employer’s contribution is March 2019. Based on the results of this valuation, the contribution an adjustment to the Primary rate to arrive at the overall rate the rates payable by the individual employers will be revised with effect employers are required to pay. For most employers, the Secondary from 1 April 2020.
78 Lancashire County Pension Fund Annual Report 2018/19 79 H
GMP Equalisation UK and European law requires pension schemes to provide equal benefits to men and women in respect of service after 17 May 1990 (the date of the “Barber” judgement) and this includes providing equal benefits accrued from that date to reflect the differences in GMPs. Previously, there was no consensus or legislative guidance as to how this might be achieved in practice for ongoing schemes, but the 26 October 2018 Lloyds Bank court judgement has now provided further clarity in this area. However, in response to this judgement HM Treasury stated that “public sector schemes already have a method to equalise guaranteed minimum pension benefits, which is why we will not have to change our method as a result of this judgment”, clearly implying that the Government (who have the overall power to determine benefits provision) believe the judgement itself will not affect the benefits. Therefore, the natural conclusion for the main public service pension schemes including the Local Government Pension Scheme is that it is not appropriate for any provision to be included for the effect of the Lloyds Bank judgment, at least at the present time, and so we have not made any allowance for any additional liabilities within the above figures at this stage. However, in due course there may be a further cost to the LGPS in connection with equalisation/indexation, when the Government confirms the overall approach which it wishes to adopt in this area following its consultation.
John Livesey Mark Wilson
Fellow of the Institute and Fellow of the Institute and Faculty of Actuaries Faculty of Actuaries
Mercer Limited Mercer Limited
July 2019 July 2019
80 81 I Lancashire Local Pension Board Annual Report – 2018/19
The Lancashire County Pension Fund’s Fund’s activities and comment on them to During the year we welcomed Keith Training Name Internal events External events Online modules Local Pension Board (LPB) has now been the PFC. If we believe something requires Wallbank, who was appointed to The Board has a small internal budget, W Bourne 0 2 7 up and running for nearly four years. As particular attention, we may make a formal fill a vacancy for a Scheme Member which is used primarily for Members’ a reminder to readers, our legal duty is to recommendation to them which requires representative which had arisen in June attendance at training events or County Councillor C Wakeford 0 0 0 assist the Pension Fund Committee (PFC). a response. However, we are always aware 2018 and I have been reappointed by the conferences. During the year £10,474.66 Because LPB members explicitly represent that our role is to assist the PFC and a good County Council to serve as Chair for up to a was spent running the Board and training. T Pounder 2 1 0 either employers or members, we also relationship between the two bodies is further four years. have a representative role in the Fund’s absolutely essential. The LPB is under a legal obligation to S Thompson 1 1 0 The LPB meets four times a year and we maintain its levels of knowledge and governance structure. C Gibson 0 1 0 In this report, I will start by reminding additionally create informal groups if we feel understanding through regular training. We When they were set up in 2015, LPBs readers of the mechanics of the LPB; cover they are needed. Members attend training conduct a gap analysis of training needs K Haigh 6 1 3 were new bodies and it has taken time to the training we undertake; and finally events both in Preston and elsewhere. In my once a year as part of our own annual establish how we should fulfil our duties comment on our activities in the past twelve capacity as Chair I am also invited to attend appraisal, which becomes an agenda item R Harvey 4 0 0 without duplicating the PFC’s role. There is months, noting where we expect to focus meetings of the Pension Fund Committee at our next meeting and have all committed Y Moult 3 2 7 a wide variation in the effectiveness of LPBs our efforts in the next year. to present reports and advise on the work of to completing the online training modules across the country and the national Scheme the Board. I have attended three out of the K Wallbank 4 0 0 Membership of the Pension from The Pension Regulator’s Public Advisory Board will be conducting a survey four Committees held over the past year. Service toolkit. Members are actively into the operation of LPBs in 2019. Your Board D Owen 1 0 0 Attendance of Board encouraged to join internal training LPB is seen as one of the leading models The LPB has nine members, four Employer sessions held jointly with the members and I shall be contributing a response in representatives, four Scheme Member members at meetings of the of the Pension Fund Committee. During order to spread what I regard as good representatives and I act as the Independent Pension Board the year, internal training workshops were practice. Chair. Members serve an eight year term, Details of individual members' attendance held on a number of topics including cyber We create an annual work plan to ensure except for the Chair who serves four. Apart at Board meetings (between 1 May 2018 resilience, infrastructure, property, the that we are methodical in our activities. The from the Chair, none are remunerated other and 30 April 2019), together with changes triennial fund valuation and responsible core of our work is to review the reports and than for expenses incurred in attending to the membership of the Board, are set investment. Members are also notified compliance assurances which support the meetings or training. out below. of and encouraged to attend external training conferences/event to extend their knowledge and meet LPB members from other funds. Name Representing 3rd July 16th October 29th January 30th April The table below shows the number of 2018 2018 2019 2019 training events which individual Board W Bourne Chair members attended during the period 1 May 2018 to 30 April 2019, and those who T Pounder Employer rep - LCC apologies have completed online modules from The County Councillor C Wakeford Employer rep - LCC Pension Regulators Public Service Toolkit. S Thompson Employer – Unitary, City, Borough, Further information about the Board, Police & Fire including minutes and public papers, can C Gibson Employer rep - Others apologies apologies be viewed on the Your Pension Service website. K Haigh Scheme Member rep R Harvey Scheme Member rep apologies Y Moult Scheme Member rep apologies K Wallbank Scheme Member rep N/A
Change to the membership of the Board K Wallbank appointed in October 2018 to fill a scheme member representative vacancy which arose in June 2018.
82 Lancashire County Pension Fund Annual Report 2018/19 83 I
Activities during the year to provide third-party assurance that it is and fund governance, which is the LPB’s A year ago I expected the focus to be indeed cost-effective for both funds. The major concern, is seen as a market leader in largely on the LPB’s core scrutinising report by PwC was duly delivered but was many respects within the LGPS. This can role. In particular I said we would perhaps too early in LPP’s life to provide a be expected to result in a good outcome monitor improvements expected from definitive answer to the question. The LPB for stakeholders i.e. that all pensions are the Administration Transformation Plan, will remain vigilant on this front because paid in full and on time while employers’ as well as the governance processes over LPP’s role is so important to the smooth contributions are kept no higher than they LPP (Local Pensions Partnership, the entity running of the Fund. need be. The LPB is looking forward to created with the London Pension Fund With the next valuation due as of 31 March being part of the process of continuing to Authority to perform the Fund’s investment 2019, communication and engagement seek improvements, particularly as regards and administration activities). The Fund’s will remain at the forefront of our work in administration service quality. ability to fulfil its fiduciary duty and thereby the next year. Valuations almost always I would like once again to thank the officers pay pensions in full and on time depends involve changes to employer contributions at LCPF who support us in our duties. As critically on LPP providing an effective and effective communication to manage part of our annual Board appraisal I speak service to it. expectations is essential. individually to each member, and I can again In practice, we have spent more time than I comment next on some of our more record unanimous agreement that we are we had envisaged on the changes to the routine scrutinising work. At every meeting, ably and effectively supported by the team administration service. The LPB was fully we look at any breaches of the regulations at LCPF. In my view it is important that we supportive of the concept behind the and at the key performance indicators in recognise that publicly in this report. plan but did, in 2017, recommend a risk detail. One of our objectives for next year assessment ahead of its implementation is to review the KPIs to ensure they properly William Bourne date. With hindsight, had this been done reflect the experience of Fund members. and acted on it might have prevented many This will help us in our aim of assisting Independent Chair of the Lancashire Local of the problems the service encountered in the PFC in monitoring LPP’s performance Pension Board the first half of this year. effectively. April 2019 We have consequently been actively During the year we also reviewed and involved in engaging LPP, both through commented on a wide range of documents. recommendations to the PFC and on These included statutory documents such occasion directly, to ensure that client as the Administration, Investment and service quality is given priority. We have Governance Strategy statements, as well also been carefully monitoring the recovery as policies such as that on responsible of service levels since the implementation investment and climate change. We also of the Administration Plan. At our January looked for assurance that the Fund is 2019 meeting, we set up an informal compliant with The Pension Regulator’s advisory group together with LPP and Code 14 and CIPFA’s guidance, as well as officers to assist by providing feedback from internal and external audit requirements. the employers’ and members’ perspectives. Looking forward to the next year, we expect We are aware that there is more work to be to be able to spend more of our time on this done to improve the client experience but basic scrutiny. The regulations governing at the same time remain firmly behind LPP’s the LGPS are complex and varied, and the ambition to use the combination of the two LPB’s second pair of eyes provides the PFC administration services as an opportunity to with a valuable check to ensure that the change things for the better. Fund is fully compliant. I noted last year an external review of Your Fund is, in my view, currently in a good LPP’s effectiveness, which had been position. The funding level at 31 March commissioned after two years’ operation 2019 is likely to be not too far off 100%
84 Lancashire County Pension Fund Annual Report 2018/19 85 J Actuarial Valuation
An actuarial valuation of the Fund is carried The valuation (effective from 1 April 2017) revealed a funding level The Rates and adjustments certified and over the 3 years covered by the certificate. Additional contributions out every three years by the Fund’s actuary of 90% and an average employer’s contribution rate of 14.9% plus a accompanying schedule extracted from the or a different pattern of contributions may be paid if requested by Mercer. The most recent valuation carried deficit contribution in 2017/18 of £41.5m. For most employers the actuarial valuation are as follows: the employer concerned at the sole discretion of the Administering out was at 31 March 2016 which determines deficit contribution will increase at 3.7% per annum for 16 years. Authority as agreed with the Actuary. The total contributions contribution rates effective from 1 April 2017 The chart below, taken from the certified actuarial valuation as at payable by each employer will be subject to a minimum of zero. RATES AND ADJUSTMENTS CERTIFICATE ISSUED IN to 31 March 2020. 31 March 2016, compares the assets and liabilities of the Fund at 31 The individual employer contributions may be varied as agreed by March 2016. Figures are also shown for the last valuation as at 31 ACCORDANCE WITH REGULATION 62 the Actuary and Administering Authority to reflect any changes The Funding objective is to achieve and then maintain assets equal March 2013 for comparison. NAME OF FUND Lancashire County Pension Fund in contribution requirements as a result of any benefit costs being to the Funding Target. The Funding Target is the present value The employer contributions for 2017/18 are based on the 2016 insured with a third party or parties including where the third party of 100% of projective accrued liabilities, including allowance for or parties participate in the Fund. projected final pay. This is to comply with the requirements of valuation and the recommended employer contributions for the PRIMARY CONTRIBUTION RATE period 1 April 2017 to 31 March 2020 are set out in the Schedule to In cases where an element of an existing Scheme employer's deficit the LGPS regulations to secure the solvency of the Fund and is I hereby certify that, in my opinion, the primary rate of the in accordance with the Funding Strategy Statement (FSS). The the Rates and Adjustments of this report. is transferred to a new employer on its inception, the Scheme employers’ contribution for the whole Fund for each of the three employer's deficit recovery contributions, as shown on the schedule methodology and assumptions by which the Funding Targets and The projected unit method of valuation was used for the years beginning 1 April 2017 is 14.9% of pensionable pay. contribution rates are calculated have also been determined in valuation and is in common use for funding Pension Funds in the to this Certificate in Appendix H, may be reallocated between the accordance with the FSS. United Kingdom. The Valuation results depend on financial and The primary rate of contribution for each employer for the three year Scheme employer and the new employer to reflect this, on advice of period beginning 1 April 2017 is set out in the attached schedule. the Actuary and as agreed with the Administering Authority so that The FSS specifies an average period for achieving full funding of demographic assumptions and these are detailed in full in the Actuarial Valuation and at Appendix A of the Funding Strategy the total payments remain the same overall. 16 years. The FSS sets out the circumstances in which this may SECONDARY CONTRIBUTION RATE vary from one employer to another Where a shortfall exists at the Statement. Your Pension Service - Lancashire Fund Information The Administering Authority and employer with advice from effective date of the valuation a deficit recovery plan will be put into I hereby certify that, in my opinion, the secondary rate of the the Fund’s Actuary can agree that contributions payable under place which requires additional contributions to correct the shortfall. employer’s contribution for the whole Fund for each of the three this certificate can be sourced under an alternative financing years beginning 1 April 2017 is as follows: arrangement which provides the Fund with equivalent cash 2017/18 £36.0 million plus 0.6% of pensionable pay contributions. Solvency Funding Level 2018/19 £37.1 million plus 0.7% of pensionable pay REGULATION 62(8) 2019/20 £38.1 million plus 0.9% of pensionable pay No allowance for non-ill health early retirements has been made 31 March 2013 31 March 2016 8000 The secondary rate of contribution for each employer for each of the in determining the results of the valuation, on the basis that the 78% 90% Deferreds three years beginning 1 April 2017 is set out in the attached schedule. costs arising will be met by additional contributions. Allowance for ill health retirements has been included in each employer’s Actives 7000 CONTRIBUTION AMOUNTS PAYABLE contribution rate, on the basis of the method and assumptions set Pensioners The total contribution payable for each employer is the total of the out in the report. 6000 primary and secondary rates as detailed in the attached schedule. 2,440 2,325 Assets Contributions will be paid monthly in arrears with each payment 5000 normally being due by the 19th of the following month (or the 22nd if paid electronically) unless otherwise noted in the schedule. Signature: Signature: £m 4000 1,305 Name: John Livesey Name: Mark Wilson 1,088 FURTHER ADJUSTMENTS 3000 A further individual adjustment shall be applied in respect of each Qualification: Qualification: 5,011 2,860 6,036 3,096 non-ill health early retirement occurring in the period of three years Fellow of the Institute and Fellow of the Institute and 2000 covered by this certificate. This further individual adjustment will Faculty of Actuaries Faculty of Actuaries be calculated in accordance with methods agreed from time to time 1000 between the Fund’s Actuary and the Administering Authority. Date of signing: 31 March 2017 The contributions set out in the attached schedule represent the 0 minimum contribution which may be paid by each employer in total Assets Liabilities Assets Liabilities £5,011m £6,388m £6,036m £6,726m
86 Lancashire County Pension Fund Annual Report 2018/19 87 J
Schedule to the rates and adjustments certificate dated 31 march 2017
Employer Primary rate Secondary rates Total Contribution rates Employer Primary rate Secondary rates Total Contribution rates 2017/18 to 2017/18 to 2019/20 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 Major authorities Other scheme employers Blackburn with 14.8% -2.4% plus -1.4% plus £4,857,500 12.4% plus 13.4% plus 14.8% plus Accrington & 15.1% £269,300 £279,200 £289,600 15.1% plus 15.1% plus 15.1% plus Darwen Borough £4,773,000 £4,773,000 £4,773,000 £4,773,000 £4,857,500 Rossendale College £269,300 £279,200 £289,600 Council Blackburn College 14.2% £82,800 £85,900 £89,000 14.2% plus 14.2% plus 14.2% plus Blackpool Borough 14.8% *£3,315,200 *£4,087,500 *£4,501,400 14.8% plus 14.8% plus 14.8% plus £82,800 £85,900 £89,000 Council *£3,315,200 *£4,087,500 *£4,501,400 Blackburn St Mary’s 14.6% £9,100 £9,400 £9,800 14.6% plus 14.6% plus 14.6% plus Burnley Borough 15.4% *£1,379,800 *£1,370,600 *£1,361,400 15.4% plus 15.4% plus 15.4% plus College £9,100 £9,400 £9,800 Council *£1,379,800 *£1,370,600 *£1,361,400 Blackpool & The 14.4% £192,600 £199,700 £207,100 14.4% plus 14.4% plus 14.4% plus Chorley Borough 14.4% £790,500 £840,500 £966,300 14.4% plus 14.4% plus 14.4% plus Fylde College £192,600 £199,700 £207,100 Council £790,500 £840,500 £966,300 Blackpool Coastal 13.9% -1.9% -1.9% -1.9% 12% 12% 12% Fylde Borough 15.2% *£583,800 *£579,900 *£576,000 15.2% plus 15.2% plus 15.2% plus Housing Council *£583,800 *£579,900 *£576,000 Blackpool Housing 13.4% -0.1% -0.1% -0.1% 13.3% 13.3% 13.3% Hyndburn Borough 15.3% 12.7% 12.7% 12.7% 28% 28% 28% Company Ltd Council Blackpool Sixth 12.1% -0.3% -0.3% -0.3% 11.8% 11.8% 11.8% Lancashire Chief 14.0% **£1,791,700 **£1,858,000 **£1,926,700 14% plus 14% plus 14% plus Form College Constable **£1,791,700 **£1,858,000 **£1,926,700 Burnley College 13.2% £124,900 £129,500 £134,300 13.2% plus 13.2% plus 13.2% plus Lancashire County 15.1% *£9,534,200 *£9,470,300 *£9,406,900 15.1% plus 15.1% plus 15.1% plus £124,900 £129,500 £134,300 Council - excluding *£9,534,200 *£9,470,300 *£9,406,900 Cardinal Newman 13.9% £49,400 £51,200 £53,100 13.9% plus 13.9% plus 13.9% plus schools College £49,400 £51,200 £53,100 Lancashire County 15.1% 4.7% 4.8% 4.9% 19.8% 19.9% 20.0% County Councils 5.2% £700 £700 £800 5.2% plus £700 5.2% plus £700 5.2% plus £800 Council schools Network Lancashire Fire & 14.7% ***(£312,700) ***(£324,300) ***(£336,300) 14.7% less 14.7% less 14.7% less Rescue Service ***£312,700 ***£324,300 ***£336,300 Edge Hill University 14.3% £780,300 £809,200 £839,100 14.3% plus 14.3% plus 14.3% plus £780,300 £809,200 £839,100 Lancaster City 15.5% *£945,900 *£939,600 *£933,300 15.5% plus 15.5% plus 15.5% plus Council *£945,900 *£939,600 *£933,300 Lancaster & 15.3% £121,300 £125,800 £130,400 15.3% plus 15.3% plus 15.3% plus Morecambe College £121,300 £125,800 £130,400 Pendle Borough 15.5% *£1,219,900 *£1,211,700 *£1,203,600 15.5% plus 15.5% plus 15.5% plus Council *£1,219,900 *£1,211,700 *£1,203,600 Myerscough College 14.2% £165,800 £171,900 £178,300 14.2% plus 14.2% plus 14.2% plus £165,800 £171,900 £178,300 Preston City Council 15.4% *£1,409,100 *£1,399,700 *£1,390,300 15.4% plus 15.4% plus 15.4% plus *£1,409,100 *£1,399,700 *£1,390,300 Nelson and Colne 14.0% £50,700 £52,500 £54,500 14% plus 14% plus 14% plus College £50,700 £52,500 £54,500 Ribble Valley 16.5% **£173,500 **£179,900 **£186,500 16.5% plus 16.5% plus 16.5% plus Borough Council **£173,500 **£179,900 **£186,500 Police & Crime 13.9% £3,800 £3,900 £4,100 13.9% plus 13.9% plus 13.9% plus Commissioner £3,800 £3,900 £4,100 Rossendale Borough 15.6% *£996,900 *£990,200 *£983,600 15.6% plus 15.6% plus 15.6% plus Council *£996,900 *£990,200 *£983,600 Preston College 13.3% £259,900 £269,500 £279,500 13.3% plus 13.3% plus 13.3% plus £259,900 £269,500 £279,500 South Ribble 14.9% **£547,200 **£567,500 **£588,400 14.9% plus 14.9% plus 14.9% plus Borough Council **£547,200 **£567,500 **£588,400 Runshaw College 15.7% £86,000 £89,200 £92,500 15.7% plus 15.7% plus 15.7% plus West Lancashire 16.3% *£985,600 *£979,000 *£972,400 16.3% plus 16.3% plus 16.3% plus £86,000 £89,200 £92,500 District Council *£985,600 *£979,000 *£972,400 University of Central 14.3% £949,800 £984,900 £1,021,400 14.3% plus 14.3% plus 14.3% plus Wyre Borough 15.8% *£707,700 *£702,900 *£698,200 15.8% plus 15.8% plus 15.8% plus Lancashire £949,800 £984,900 £1,021,400 Council *£707,700 *£702,900 *£698,200 88 Lancashire County Pension Fund Annual Report 2018/19 89 J
Employer Primary rate Secondary rates Total Contribution rates Employer Primary rate Secondary rates Total Contribution rates 2017/18 to 2017/18 to 2019/20 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 Designated / Resolution body Academies / schools Blackpool Transport 23.1% -23.1% -23.1% -23.1% 0% 0% 0% Academy at Worden 14.6% £13,400 £13,900 £14,400 14.6% plus 14.6% plus 14.6% plus Services Ltd £13,400 £13,900 £14,400 Catterall Parish 25.3% Nil Nil Nil 25.3% 25.3% 25.3% Accrington Academy 14.3% -2.9% -2.9% -2.9% 11.4% 11.4% 11.4% Council Darwen Town 15.9% Nil Nil Nil 15.9% 15.9% 15.9% Albany Science 16.2% £23,800 £24,700 £25,600 16.2% plus 16.2% plus 16.2% plus Council College (Academy) £23,800 £24,700 £25,600 Garstang Town 17.5% Nil Nil Nil 17.5% 17.5% 17.5% All Saints CE Primary 14.1% £16,200 £16,800 £17,400 14.1% plus 14.1% plus 14.1% plus Council School (Academy) £16,200 £16,800 £17,400 Habergham Eaves 15.8% Nil Nil Nil 15.8% 15.8% 15.8% Anchorsholme 16.0% £34,900 £36,200 £37,500 16% plus 16% plus 16% plus Parish Council Academy £34,900 £36,200 £37,500 Kirkland Parish 25.2% -0.7% -0.7% -0.7% 24.5% 24.5% 24.5% ANWET - Darwen 14.3% -2% -2% -2% 12.3% 12.3% 12.3% Council Aldridge Community Academy Lancs Sports 10.9% -0.6% -0.6% -0.6% 10.3% 10.3% 10.3% ANWET - Darwen 15.1% £64,600 £67,000 £69,500 15.1% plus 15.1% plus 15.1% plus Partnership Ltd Vale Academy £64,600 £67,000 £69,500 Marketing 12.6% -1.1% -1.1% -1.1% 11.5% 11.5% 11.5% ANWET - Sudell PS 19.1% £18,300 £19,000 £19,700 19.1% plus 19.1% plus 19.1% plus Lancashire Ltd Academy £18,300 £19,000 £19,700 Morecambe Town 19.2% -1.2% -1.2% -1.2% 18% 18% 18% Bacup and 14.8% £22,600 £23,400 £24,300 14.8% plus 14.8% plus 14.8% plus Council Rawtenstall Grammar £22,600 £23,400 £24,300 Old Laund Booth 15.9% Nil Nil Nil 15.9% 15.9% 15.9% School (Academy) Parish Council Penwortham Town 15.8% -3.4% -3.4% -3.4% 12.4% 12.4% 12.4% Belthorn Primary 18.6% £7,300 £7,600 £7,900 18.6% plus 18.6% plus 18.6% plus Council Academy £7,300 £7,600 £7,900 Pilling Parish Council 27.6% £100 £100 £100 27.6% plus 27.6% plus 27.6% plus BFET (Marton 16.3% £22,800 £23,600 £24,500 16.3% plus 16.3% plus 16.3% plus £100 £100 £100 Primary Academy) £22,800 £23,600 £24,500 Preesall Town 23.2% £100 £100 £100 23.2% plus 23.2% plus 23.2% plus BFET (South Shore 14.9% £48,200 £50,000 £51,800 14.9% plus 14.9% plus 14.9% plus Council £100 £100 £100 Academy) £48,200 £50,000 £51,800 Rossendale 25.6% Nil Nil Nil 25.6% 25.6% 25.6% Bishop Rawstorne C 17.5% £28,500 £29,600 £30,600 17.5% plus 17.5% plus 17.5% plus Transport Ltd. of E High Academy £28,500 £29,600 £30,600 St Anne’s on Sea 17.0% £1,100 £1,100 £1,200 17% plus £1,100 17% plus £1,100 17% plus £1,200 Blackpool MAT 14.6% £47,500 £49,300 £51,100 14.6% plus 14.6% plus 14.6% plus Town Council (Revoe) £47,500 £49,300 £51,100 The Lancashire 17.8% -3.7% -3.7% -3.7% 14.1% 14.1% 14.1% Blessed Edward MAT 16.3% £11,900 £12,300 £12,800 16.3% plus 16.3% plus 16.3% plus Colleges Ltd (Christ) £11,900 £12,300 £12,800 Whittle-le-woods 17.0% Nil Nil Nil 17% 17% 17% Blessed Edward MAT 15.3% £24,900 £25,800 £26,800 15.3% plus 15.3% plus 15.3% plus Parish Council (St Cuthbert) £24,900 £25,800 £26,800 Whitworth Town 12.8% £2,200 £2,200 £2,300 12.8% plus 12.8% plus 12.8% plus Blessed Edward MAT 15.5% £46,500 £48,200 £50,000 15.5% plus 15.5% plus 15.5% plus Council £2,200 £2,200 £2,300 (St Mary’s) £46,500 £48,200 £50,000 Bowland High 17.6% £29,000 £30,100 £31,200 17.6% plus 17.6% plus 17.6% plus Academy Trust £29,000 £30,100 £31,200 Cidari Ed Ltd 17.0% £9,600 £10,000 £10,400 17% plus £9,600 17% plus 17% plus (Marsden St John) £10,000 £10,400
90 Lancashire County Pension Fund Annual Report 2018/19 91 J
Employer Primary rate Secondary rates Total Contribution rates Employer Primary rate Secondary rates Total Contribution rates 2017/18 to 2017/18 to 2019/20 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 Academies / schools Academies / schools Cidari Edu Ltd (Baines 12.7% £39,300 £40,800 £42,300 12.7% plus 12.7% plus 12.7% plus Fylde Coast Academy 13.4% £1,500 £1,600 £1,600 13.4% plus 13.4% plus 13.4% plus Endowed) £39,300 £40,800 £42,300 Trust £1,500 £1,600 £1,600 Cidari Education Trust 8.8% £2,400 Nil Nil 8.8% plus 8.8% 8.8% Garstang Community 17.9% £27,900 £28,900 £30,000 17.9% plus 17.9% plus 17.9% plus £2,400 Academy £27,900 £28,900 £30,000 Cidari Education Ltd 14.0% £17,100 £17,700 £18,400 14% plus £17,100 14% plus £17,700 14% plus Hambleton Primary 13.6% £6,800 £7,100 £7,300 13.6% plus 13.6% plus 13.6% plus (St Aidans) £18,400 Academy £6,800 £7,100 £7,300 Cidari Education Ltd 16.2% £20,100 £20,800 £21,600 16.2% plus 16.2% plus 16.2% plus Hawe Side Primary 15.6% £17,500 £18,100 £18,800 15.6% plus 15.6% plus 15.6% plus (St Barnabas) £20,100 £20,800 £21,600 School £17,500 £18,100 £18,800 Cidari Education Ltd 13.8% £17,300 £17,900 £18,600 13.8% plus 13.8% plus 13.8% plus Hodgson Academy 17.5% £43,400 £45,000 £46,700 17.5% plus 17.5% plus 17.5% plus (St James) £17,300 £17,900 £18,600 £43,400 £45,000 £46,700 Clitheroe Royal 16.7% £58,000 £60,100 £62,400 16.7% plus 16.7% plus 16.7% plus Lancashire Care 20.1% -5% -5% -5% 15.1% 15.1% 15.1% Grammar School £58,000 £60,100 £62,400 Foundation (Academy) Lancaster Girls 15.5% £41,900 £43,400 £45,000 15.5% plus 15.5% plus 15.5% plus CSCST (Burnley High 13.6% £300 £300 £300 13.6% plus £300 13.6% plus £300 13.6% plus £300 Grammar School £41,900 £43,400 £45,000 Free School) (Academy) Devonshire Academy 15.7% £36,900 £38,300 £39,700 15.7% plus 15.7% plus 15.7% plus Lancaster Royal 17.9% £66,500 £69,000 £71,500 17.9% plus 17.9% plus 17.9% plus £36,900 £38,300 £39,700 Grammar School £66,500 £69,000 £71,500 (Academy) Education Partnership 17.6% £20,000 £20,700 £21,500 17.6% plus 17.6% plus 17.6% plus Langdale Free School 15.4% Nil Nil Nil 15.4% 15.4% 15.4% Trust (Coal Clough) £20,000 £20,700 £21,500 Education Partnership 10.7% £1,400 £1,500 £1,600 10.7% plus 10.7% plus 10.7% plus Lostock Hall Academy 17.2% £30,100 £31,200 £32,400 17.2% plus 17.2% plus 17.2% plus Trust (Eden School) £1,400 £1,500 £1,600 Trust £30,100 £31,200 £32,400 Education Partnership 15.9% £66,200 £68,600 £71,200 15.9% plus 15.9% plus 15.9% plus Maharishi School 18.4% -0.1% -0.1% -0.1% 18.3% 18.3% 18.3% Trust (Pleckgate HS) £66,200 £68,600 £71,200 (Free School) FACT (Unity 13.5% £59,500 £61,700 £64,000 13.5% plus 13.5% plus 13.5% plus Moorside Community 14.8% £10,800 £11,200 £11,600 14.8% plus 14.8% plus 14.8% plus Academy) £59,500 £61,700 £64,000 PS Academy £10,800 £11,200 £11,600
FCAT (Aspire 17.1% £48,500 £50,300 £52,200 17.1% plus 17.1% plus 17.1% plus Norbreck Primary 15.0% £18,400 £19,100 £19,800 15% plus 15% plus £19,100 15% plus Academy) £48,500 £50,300 £52,200 Academy £18,400 £19,800 FCAT (Montgomery 14.3% £55,000 £57,000 £59,100 14.3% plus 14.3% plus 14.3% plus Parbold Douglas CE 16.1% £9,700 £10,100 £10,400 16.1% plus 16.1% plus 16.1% plus HS Academy) £55,000 £57,000 £59,100 Academy £9,700 £10,100 £10,400 Fulwood Academy 15.2% -3.9% -3.9% -3.9% 11.3% 11.3% 11.3% Park Academy 13.2% £55,300 £57,300 £59,500 13.2% plus 13.2% plus 13.2% plus £55,300 £57,300 £59,500 Parklands High School 14.6% £25,900 £26,800 £27,800 14.6% plus 14.6% plus 14.6% plus (Academy) £25,900 £26,800 £27,800 Pendle Education 17.5% £14,200 £14,700 £15,300 17.5% plus 17.5% plus 17.5% plus Trust (Colne Primet) £14,200 £14,700 £15,300 Pendle Education 17.2% £24,900 £25,800 £26,800 17.2% plus 17.2% plus 17.2% plus Trust (Castercliff) £24,900 £25,800 £26,800 Pendle Education 15.5% £14,700 £15,200 £15,800 15.5% plus 15.5% plus 15.5% plus Trust (Walter Street £14,700 £15,200 £15,800 Primary School) Penwortham Priory 15.4% £17,100 £17,700 £18,300 15.4% plus 15.4% plus 15.4% plus Academy £17,100 £17,700 £18,300
92 Lancashire County Pension Fund Annual Report 2018/19 93 J
Employer Primary rate Secondary rates Total Contribution rates Employer Primary rate Secondary rates Total Contribution rates 2017/18 to 2017/18 to 2019/20 2019/20
2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 Academies / schools Academies / schools Queen Elizabeth’s 16.1% £67,100 £69,600 £72,200 16.1% plus 16.1% plus 16.1% plus Tauheedul Islam Boys 10.5% £900 £900 £1,000 10.5% plus 10.5% plus 10.5% plus Grammar School £67,100 £69,600 £72,200 High School (Free £900 £900 £1,000 Ripley St Thomas C of 17.6% £43,000 £44,600 £46,200 17.6% plus 17.6% plus 17.6% plus School) E Academy £43,000 £44,600 £46,200 Thames Primary 14.2% £29,100 £30,200 £31,300 14.2% plus 14.2% plus 14.2% plus Roseacre Primary 15.3% £23,100 £24,000 £24,800 15.3% plus 15.3% plus 15.3% plus Academy £29,100 £30,200 £31,300 Academy £23,100 £24,000 £24,800 The Heights Free 14.0% £22,600 £23,400 £24,300 14% plus 14% plus 14% plus St Christopher’s C 16.1% £88,000 £91,300 £94,600 16.1% plus 16.1% plus 16.1% plus School £22,600 £23,400 £24,300 of E high School £88,000 £91,300 £94,600 Tower MAT 12.0% £4,400 £4,600 £4,700 12% plus £4,400 12% plus £4,600 12% plus £4,700 (Academy) (Blackpool Gateway St Georges Academy 15.1% £39,200 £40,700 £42,200 15.1% plus 15.1% plus 15.1% plus Academy) £39,200 £40,700 £42,200 Waterloo Primary 14.2% £30,900 £32,000 £33,200 14.2% plus 14.2% plus 14.2% plus St Luke and St Philip 14.7% £28,100 £29,100 £30,200 14.7% plus 14.7% plus 14.7% plus School (Academy) £30,900 £32,000 £33,200 (Academy) £28,100 £29,100 £30,200 Wensley Fold CE 14.1% £29,900 £31,000 £32,200 14.1% plus 14.1% plus 14.1% plus St Michael’s C 16.5% £45,600 £47,200 £49,000 16.5% plus 16.5% plus 16.5% plus Primary Academy £29,900 £31,000 £32,200 of E High School £45,600 £47,200 £49,000 Westcliff Primary 15.3% £12,600 £13,100 £13,500 15.3% plus 15.3% plus 15.3% plus (Academy) School (Academy) £12,600 £13,100 £13,500 St Wilfrid’s C of E 13.9% £91,900 £95,300 £98,800 13.9% plus 13.9% plus 13.9% plus Academy £91,900 £95,300 £98,800 Witton Park Academy 15.8% £55,900 £58,000 £60,100 15.8% plus 15.8% plus 15.8% plus Trust £55,900 £58,000 £60,100 Tarleton Academy 14.9% £29,400 £30,500 £31,600 14.9% plus 14.9% plus 14.9% plus £29,400 £30,500 £31,600 Westcliff Primary 15.3% £12,600 £13,100 £13,500 15.3% plus 15.3% plus 15.3% plus School (Academy) £12,600 £13,100 £13,500 Tauheedul Education 11.2% -1.1% -1.1% -1.1% 10.1% 10.1% 10.1% Trust Witton Park Academy 15.8% £55,900 £58,000 £60,100 15.8% plus 15.8% plus 15.8% plus Trust £55,900 £58,000 £60,100 Tauheedul ET (Eden 10.8% £900 Nil Nil 10.8% plus 10.8% 10.8% BS Preston) £900 Tauheedul ET (Eden 10.1% Nil Nil Nil 10.1% 10.1% 10.1% GS Birmingham) Tauheedul ET (Eden 12.2% £100 Nil Nil 12.2% plus £100 12.2% 12.2% GS Slough) Tauheedul ET (Olive 8.5% -1% -1% -1% 7.5% 7.5% 7.5% Blackburn) Tauheedul ET (Olive 8.3% -1.1% -1.1% -1.1% 7.2% 7.2% 7.2% London) Tauheedul ET Eden 14.2% £100 £100 £100 14.2% plus £100 14.2% plus £100 14.2% plus £100 BS Bolton FS Tauheedul ET Eden 8.6% -0.3% -0.3% -0.3% 8.3% 8.3% 8.3% GS Coventry Tauheedul ET Eden 11.6% £1,300 £1,300 £1,400 11.6% plus 11.6% plus 11.6% plus GS Waltham £1,300 £1,300 £1,400 Tauheedul ET Islam 16.1% £17,900 £18,600 £19,200 16.1% plus 16.1% plus 16.1% plus Girls HS £17,900 £18,600 £19,200
94 Lancashire County Pension Fund Annual Report 2018/19 95 J
Employer Primary rate Secondary rates Total Contribution rates Employer Primary rate Secondary rates Total Contribution rates 2017/18 to 2017/18 to 2019/20 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 Admitted bodies (community) Admitted bodies (community)
Arnold Schools Ltd. 19.4% £26,200 £27,100 £28,100 19.4% plus 19.4% plus 19.4% plus Ribble Valley Homes Ltd 18.9% -10.2% -10.2% -10.2% 8.7% 8.7% 8.7% £26,200 £27,100 £28,100 Blackpool Fylde Wyre Blind Society 21.6% -20.6% -20.6% -20.6% 1% 1% 1% Rossendale Leisure Trust 13.6% -2.1% -2.1% -2.1% 11.5% 11.5% 11.5% Surestart Hyndburn 13.8% £22,400 £23,200 £24,100 13.8% plus 13.8% plus 13.8% plus Blackpool Zoo 19.6% -4.4% -4.4% -4.4% 15.2% 15.2% 15.2% £22,400 £23,200 £24,100 Blackpool, Fylde and Wyre Credit 21.2% -1.6% -1.6% -1.6% 19.6% 19.6% 19.6% The Ormerod Home Trust Ltd. 21.2% £145,100 £150,400 £156,000 21.2% plus 21.2% plus 21.2% plus Union £145,100 £150,400 £156,000 Calico Housing Limited 13.8% £209,200 £216,900 £224,900 13.8% plus 13.8% plus 13.8% plus Together Housing 14.7% £87,700 £90,900 £94,300 14.7% plus 14.7% plus 14.7% plus £209,200 £216,900 £224,900 £87,700 £90,900 £94,300 Catholic Caring Services 16.6% £65,500 £67,900 £70,400 16.6% plus 16.6% plus 16.6% plus University of Cumbria 14.0% £608,700 £631,200 £654,600 14% plus 14% plus 14% plus £65,500 £67,900 £70,400 £608,700 £631,200 £654,600 Chorley Community Housing 16.4% -3.9% -3.9% -3.9% 12.5% 12.5% 12.5% Wyre Housing Association 19.3% £257,600 £267,100 £277,000 19.3% plus 19.3% plus 19.3% plus Community and Business Partners 14.8% -2% -2% -2% 12.8% 12.8% 12.8% £257,600 £267,100 £277,000 CIC Admitted bodies (contractor) Community Council of Lancashire 19.5% £26,000 £27,500 £28,500 19.5% plus 19.5% plus 19.5% plus Alternative Futures Group Ltd 22.2% -22.2% -22.2% -22.2% 0% 0% 0% £26,000 £27,500 £28,500 Community Gateway Association 16.1% -1.5% -1.5% -1.5% 14.6% 14.6% 14.6% Andron (formerly Solar) 21.3% -21.3% -21.3% -21.3% 0% 0% 0% Contour Housing Group 22.2% -22.2% -22.2% -22.2% 0% 0% 0% Bootstrap Enterprises Ltd 18.8% -17.9% -17.9% -17.9% 0.9% 0.9% 0.9% Fylde Community Link 16.8% £11,200 £11,700 £12,100 16.8% plus 16.8% plus 16.8% plus Bulloughs (Carr Head PS) 25.6% £500 Nil Nil 25.6% plus 25.6% 25.6% £11,200 £11,700 £12,100 £500 Galloways Society for Blind 20.2% £16,600 £17,200 £17,800 20.2% plus 20.2% plus 20.2% plus Bulloughs (Lytham Hall) 21.0% Nil Nil Nil 21% 21% 21% £16,600 £17,200 £17,800 Bulloughs (Our Lady) 16.8% -7.3% -7.3% -7.3% 9.5% 9.5% 9.5% Hyndburn Homes Ltd 18.4% -2.8% -2.8% -2.8% 15.6% 15.6% 15.6% Burnley Leisure 13.6% -2% -2% -2% 11.6% 11.6% 11.6% Kirkham Grammar School 19.9% £29,300 £30,400 £31,500 19.9% plus 19.9% plus 19.9% plus (Independent) £29,300 £30,400 £31,500 Capita (Rossendale BC Transfer) 20.7% -20.7% -20.7% -20.7% 0% 0% 0% Lancashire County Branch Unison 18.2% -18.2% -18.2% -18.2% 0% 0% 0% Catering Academy Ltd 20.1% -20.1% -20.1% -20.1% 0% 0% 0% Lancaster University 13.4% £504,700 £523,400 £542,700 13.4% plus 13.4% plus 13.4% plus Caterlink (Mount Pleasant School) 16.8% -1.9% -1.9% -1.9% 14.9% 14.9% 14.9% £504,700 £523,400 £542,700 CG Cleaning (Kennington Rd) 22.7% -17.4% Nil Nil 5.3% 22.7% 22.7% Leisure in Hyndburn 13.0% £47,800 £49,600 £51,400 13% plus 13% plus 13% plus £47,800 £49,600 £51,400 CG Cleaning (St Augustine) 22.1% -3% Nil Nil 19.1% 22.1% 22.1% Local Pensions Partnership Ltd 12.4% Nil Nil Nil 12.4% 12.4% 12.4% Churchill (Holy Family) 21.4% -16% Nil Nil 5.4% 21.4% 21.4% Lytham Schools Foundation 18.0% -4.4% -4.4% -4.4% 13.6% 13.6% 13.6% Churchill (St Anne St Joseph) 18.5% -2.8% Nil Nil 15.7% 18.5% 18.5% North West & North Wales Sea 16.6% £25,500 £26,500 £27,500 16.6% plus 16.6% plus 16.6% plus Cofely FM Ltd (Blake/Cross) 26.7% -26.7% -26.7% -26.7% 0% 0% 0% Fisheries Committee £25,500 £26,500 £27,500 Cofely FM Ltd (Lend Lease) 21.9% -5.4% -5.4% -5.4% 16.5% 16.5% 16.5% Pendle Leisure Trust 12.6% £20,600 £21,400 £22,200 12.6% plus 12.6% plus 12.6% plus £20,600 £21,400 £22,200 Cofely FM Ltd (Pleckgate) 18.8% -10.8% -10.8% -10.8% 8% 8% 8% Preston Care and Repair 13.7% £3,600 Nil Nil 13.7% plus 13.7% 13.7% Cofely FM Ltd (Witton Park) 23.2% -3.2% -3.2% -3.2% 20% 20% 20% £3,600 Compass Contract Services 23.4% -0.4% -0.4% -0.4% 23% 23% 23% Progress Housing Group Ltd 17.9% -2.3% -2.3% -2.3% 15.6% 15.6% 15.6% Compass Contract Services (UK) 20.9% -0.9% -0.9% -0.9% 20% 20% 20% QEGS Blackburn Ltd 16.5% -0.3% -0.3% -0.3% 16.2% 16.2% 16.2% Ltd (Preston College)
96 Lancashire County Pension Fund Annual Report 2018/19 97 J
Employer Primary rate Secondary rates Total Contribution rates Employer Primary rate Secondary rates Total Contribution rates 2017/18 to 2017/18 to 2019/20 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 Admitted bodies (community) Admitted bodies (community)
Consultant Caterers Ltd 22.5% -17.8% -17.8% -17.8% 4.7% 4.7% 4.7% Service Alliance (Barnoldswick) 21.3% Nil Nil Nil 21.3% 21.3% 21.3% Creative Support Limited (Midway 18.2% -4.2% -4.2% -4.2% 14% 14% 14% Service Alliance (Whalley PS) 22.2% Nil Nil Nil 22.2% 22.2% 22.2% Mental health) Service Alliance Ltd (Altham) 25.7% -3.1% Nil Nil 22.6% 25.7% 25.7% Creative Support Ltd 21.0% -21% -21% -21% 0% 0% 0% Service Alliance Ltd (RCC) 26.6% £500 Nil Nil 26.6% plus 26.6% 26.6% Elite CES Ltd (Fulwood Cadley) 19.9% Nil Nil Nil 19.9% 19.9% 19.9% £500 Elite CES Ltd (Moor Nook PS) 23.1% Nil Nil Nil 23.1% 23.1% 23.1% South Ribble Community Leisure 13.5% £80,400 £83,400 £86,500 13.5% plus 13.5% plus 13.5% plus (Serco) £80,400 £83,400 £86,500 Elite Cleaning and Environmental 16.7% -9.8% -9.8% -9.8% 6.9% 6.9% 6.9% Services Ltd Urbaser Ltd 23.9% £400 £400 £400 23.9% plus 23.9% plus 23.9% plus £400 £400 £400 Eric Wright Facilities Management 20.2% -19.5% -19.5% -19.5% 0.7% 0.7% 0.7% Ltd (Highfield High School) West Lancashire Community 14.9% -14.9% -14.9% -14.9% 0% 0% 0% Leisure (Serco) FCC Environment 20.6% Nil Nil Nil 20.6% 20.6% 20.6% Other employers confirmed post valuation Fylde YMCA 16.5% -16.5% -16.5% -16.5% 0% 0% 0% Freckleton Parish Council 18.6% Nil Nil Nil 18.6% 18.6% 18.6% I CARE 26.1% -26.1% -26.1% -26.1% 0% 0% 0% PET (West Craven) 17.2% £18,100 £18,800 £19,500 17.2% plus 17.2% plus 17.2% plus Ind Living Fund (Blackpool BC) 19.7% -2% Nil Nil 17.7% 19.7% 19.7% £18,100 £18,800 £19,500 Lend Lease Cons.(EMEA) ICT 18.8% -5.3% -5.3% -5.3% 13.5% 13.5% 13.5% Andron Heyhouses 23.3% Nil Nil Nil 23.3% 23.3% 23.3% Lend Lease Cons.(EMEA) ph3 13.9% -3% -3% -3% 10.9% 10.9% 10.9% Blessed Edward Trust 10.7% Nil Nil Nil 10.7% 10.7% 10.7% Lend Lease Construction (EMEA) 16.9% -1.9% -1.9% -1.9% 15% 15% 15% Churchill Moorside 25.1% -4.3% -4.3% -4.3% 20.8% 20.8% 20.8% Limited (Fulwood Academy) Clayton-le-Woods Parish Council 17.8% -0.9% -0.9% -0.9% 16.9% 16.9% 16.9% Liberata (UK) Ltd (Burnley) 18.7% -1.4% -1.4% -1.4% 17.3% 17.3% 17.3% Cliviger Parish Council 15.9% Nil Nil Nil 15.9% 15.9% 15.9% Liberata UK Ltd (Pendle) 19.2% -6.5% -6.5% -6.5% 12.7% 12.7% 12.7% Compass HHC 21.6% Nil Nil Nil 21.6% 21.6% 21.6% Mack Trading Int. (Ltd) 21.1% -21.1% -21.1% -21.1% 0% 0% 0% Education Partnership Trust 11.2% -0.4% -0.4% -0.4% 10.8% 10.8% 10.8% May Gurney Fleet and Passenger 21.7% -21.7% -21.7% -21.7% 0% 0% 0% Services Limited FCAT Mereside Primary Academy 16.3% £27,600 £28,600 £29,700 16.3% plus 16.3% plus 16.3% plus £27,600 £28,600 £29,700 Mellor’s (Bishop Rawstorne) 21.2% -6% -6% -6% 15.2% 15.2% 15.2% Mellors Lostock 21.9% Nil Nil Nil 21.9% 21.9% 21.9% Mellors (Brinscall St John) 18.9% -0.1% -0.1% -0.1% 18.8% 18.8% 18.8% PET 15.5% £700 £700 £700 15.5% plus 15.5% plus 15.5% plus Mellor’s (Hambleton PS) 27.6% -1.7% -1.7% -1.7% 25.9% 25.9% 25.9% £700 £700 £700 Mellors (Queens Drive) 20.5% Nil Nil Nil 20.5% 20.5% 20.5% Tauheedul Highfield Humanities 16.4% £57,700 £59,800 £62,000 16.4% plus 16.4% plus 16.4% plus Mellors (Trinity, St Michael) 24.7% Nil Nil Nil 24.7% 24.7% 24.7% £57,700 £59,800 £62,000 Tauheedul Olive Birmingham 7.6% Nil Nil Nil 7.6% 7.6% 7.6% Mellor’s (Worden SC) 28.8% -28.8% -28.8% -28.8% 0% 0% 0% Tauheedul Olive Bolton 11.1% Nil Nil Nil 11.1% 11.1% 11.1% Mellor’s Catering (Belthorn 21.1% Nil Nil Nil 21.1% 21.1% 21.1% Academy) Tauheedul Olive Preston 9.7% Nil Nil Nil 9.7% 9.7% 9.7% NCP Services Ltd 23.6% -23.6% -23.6% -23.6% 0% 0% 0% Taylor Shaw (Parklands HS) 22.4% -3% -3% -3% 19.4% 19.4% 19.4% RCCN (Basnett Nursery) 22.2% Nil Nil Nil 22.2% 22.2% 22.2% Tor View 12.6% £57,300 £59,400 £61,600 12.6% plus 12.6% plus 12.6% plus Ridge Crest Clean Nrth Sacred 28.8% -28.8% -28.8% -28.8% 0% 0% 0% £57,300 £59,400 £61,600 Vision Learning Trust 13.3% -0.1% -0.1% -0.1% 13.2% 13.2% 13.2%
98 Lancashire County Pension Fund Annual Report 2018/19 99 J
Employer Primary rate Secondary rates Total Contribution rates Other interested bodies with no pensionable employees 2017/18 to 2019/20 Employer Proportion of Pension 2017/18 2018/19 2019/20 2017/18 2018/19 2019/20 Increases to be Recharged Employers grouped with Council %
Andron Fearns Sport College 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Blackpool & Fylde Society for the Deaf 100 Burnley & Pendle Development Association 100 Bulloughs (St Patrick) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Burton Manor Residential College 100 Churchill (Clayton Brook) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Ex Department of Transport 100 Churchill (Morecambe Bay) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Ex National Health Service 100 Consultant Cleaners (St James) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Fylde Coast Development Association 100 Elite CES Ltd (St Annes) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Lancashire South East Probation Committee 100 Elite CES Ltd (Carr Hill) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Spastics Society 100 I Care (Ind) 14.8% -2.4% -1.4% Nil 12.4% 13.4% 14.8%
Maxim (Acorns PS) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% Notes: • 2019/20 payments made in April 2017 will 6. There are a number of additional employers Maxim (Newton Bluecoat) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% 1. Cash payments in respect of £ lump sums be reduced by 10.2% (i.e. the above amounts who no longer had any active members within marked * are payable by 30 April 2017. will be multiplied by 0.898) the Fund as at the valuation date. Any final Maxim (St Matthews CE PS) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% contribution requirement for these employers Cash payments in respect of £ lump sums For these cases the employer will need to marked ** are payable by 30 April of the will be assessed by the Fund in due course on Mellors (Delph Side PS) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% estimate in advance the pensionable pay for the basis of actuarial advice. year in which they are due. Cash payments the entire period, and a balancing adjustment Mellors (Holy Cross) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% in respect of £ lump sums marked *** are to reflect the actual pensionable pay over the 7. The Fund has implemented an internal payable by the end of the year in which they Mellors (Little Hoole) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% period would be made at the end of the period captive insurance arrangement in order are due Where applicable these amounts (no later than 19th April or 22nd April as to pool the risks associated with ill health Mellors (White Ash PS) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% have been reduced to reflect this early appropriate following the year-end). retirement costs. The captive has been payment; designed for employers that could be Premiserv (St Peter) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% 3. The percentages shown are percentages of materially affected by the ill health retirement 2. With the agreement of the Administering pensionable pay and apply to all members, RCCN (Burscough) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% of one or more of their members. The Authority employers may also opt to pay any including those who are members under the other element of their employer contributions employers (both existing and new) that will RCCN (Our Ladys Catholic HS) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% 50:50 option under the LGPS from 1 April early, with either all three years being paid be included in the captive are those with 2014; less than 150 active members (excluding RCCN (St Johns) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% in April 2017 or payment being made in major Councils). New employers entering the April of the year in question. The cash 4. The total contributions payable by each the Fund who fall into this category will also RCCN (Whitefield) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% amounts payable will be reduced in return for employer each year will be subject to a be included. For those employers in the ill- this early payment as follows: minimum of zero; Service Alliance (Clitheroe Pendle 15.1% Nil Nil Nil 15.1% 15.1% 15.1% health captive arrangement, allowance for ill Primary) • Payments made in the April of the certified 5. In cases where an element of an existing health retirements has been included in each employer’s contribution rate, on the basis of Service Alliance (St Mary 15.1% Nil Nil Nil 15.1% 15.1% 15.1% year will be reduced by 2.1% (i.e. the above Scheme Employer’s deficit is transferred to a amounts will be multiplied by 0.979) the method and assumptions set out in the Magdalene) new employer on its inception, the Scheme Employer’s deficit recovery contributions report. Service Alliance (St Marys RCP) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% • 2018/19 payments made in April 2017 will be shown in this certificate may be reallocated reduced by 6.3% (i.e. the above amounts will between the Scheme Employer and the new Service Alliance (St Wilfred) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% be multiplied by 0.937) employer to reflect this, on advice from the Service Alliance (Whittlefield) 15.1% Nil Nil Nil 15.1% 15.1% 15.1% actuary.
100 Lancashire County Pension Fund Annual Report 2018/19 101 K L Contacts Glossary
www.yourpensionservice.org.uk Accounting policies Admitted bodies Bid price The specific principles, bases, conventions, An organisation which, under Pension Scheme The price a buyer pays for a stock. Benefits and other administrative issues rules and practices applied by the authority in Regulations, is able to apply to the administering LPP – Your Pension Service preparing and presenting financial statements. authority to join the scheme (e.g. a contractor Bonds PO Box 1381 providing services to the council or another Loans, with a fixed rate of interest, made to an Accrual Preston scheduled body). Upon acceptance, an issuer (often a government or a company) which PR2 0WP The concept that income and expenditure are admission agreement is prepared admitting the undertakes to repay the loan at an agreed later organisation and allowing its employees to join. Phone: 0300 323 0260 recognised as they are earned or incurred, not as date. cash is received or paid. Email: [email protected] Alternative investments Career average revalued earnings Active management Investments considered outside of the (CARE) scheme. Investment management traditional asset classes of stocks, bonds, cash Approach to investment management which With effect from 1 April 2014, the benefits LPP or property. aims to outperform a particular market index accrued by members of the LGPS will be in the Norwest Court or benchmark through asset allocation and/or form of CARE benefits. Every year a member Guildhall Street stock selection decisions. Asset allocation accrues a pension benefit equivalent to 1/49th of Preston Distribution of investments across asset their pensionable pay in that year. The pension PR1 3NU Actuarial strain categories, such as cash, equities and bonds. accrued will increase in line with the annual Phone: 0300 323 0260 This is a charge paid by employers to the Asset allocation affects both risk and return and change in the consumer prices index over the Email: [email protected] pension fund for paying pensions early. is a central concept in financial planning and period to retirement. investment management. 2nd Floor Actuarial valuation Cash and cash equivalents 169 Union Street Assumed pensionable pay London SE1 0LL An investigation by an actuary into the ability of Short term (less than 3 months), highly liquid the Fund to meet its liabilities. For the LGPS the Where an employee loses pay due to sickness investments that are readily convertible to Phone: 020 7369 6000 fund actuary will assess the funding level of each or reduced pay family related leave, the pay known amounts of cash and which are subject to Email: [email protected] participating employer and agree contribution actually received is substituted with “assumed an insignificant risk of changes in value. rates with the administering authority to fund pensionable pay” when calculating “career Pension Fund Accounts the cost of new benefits and make good any average” benefits and employer contributions. Collateral Assumed pensionable pay is the average of pay Abigail Leech existing deficits. An asset (cash or securities) posted from one in the three months prior to the month in which Head of Pension Fund counterparty to another, and held as a guarantee Actuary the reduced pay occurs. Phone: 01772 530808 against the value of a specified portfolio of An independent consultant who advises the trades or other transactions. E-mail: [email protected] Auditor scheme and every three years formally reviews the assets and liabilities of the scheme and An independent qualified accountant who is Conflicts of interest required to verify and agree the Pension Fund produces a report on the scheme’s financial Real or apparent instances where a person or accounts and issue an opinion on their accuracy. position, known as the Actuarial Valuation. firm has an incentive to serve one interest at the expense of another. Some of those conflicts are Additional voluntary contributions Auto enrolment inherent in any large, diversified organisation, (AVC’s) UK employers have to automatically enrol their while others stem from the nature of the This is an extra contribution a member can pay staff into a workplace pension if they meet the services offered to clients. Those conflicts are to their own pension scheme to increase future criteria. The law on workplace pensions has now managed through disclosure and with policies pension benefits. changed and every employer must comply. and procedures that are designed to protect client’s interests. The appearance of a conflict Administering authority Benchmark of interest is present if there is a potential for the personal interests of an individual to clash with A local authority required to maintain a pension These are investment performance standards fiduciary duties. fund under LGPS regulations. Within the that we expect our investment managers to geographical boundary of Lancashire this is achieve and against which we measure their Lancashire County Council. investment return.
102 Lancashire County Pension Fund Annual Report 2018/19 103 L Glossary
Consumer price index (CPI) Custody / custodian its performance within the period of their Funding level • An FCA-regulated structure for asset pooling. Pooled investment vehicles ownership. Long term investors such as pension • An organisation focused on managing assets CPI is a measure of inflation based on the Safekeeping of securities by a financial The ratio of a Pension scheme’s assets to its Funds which manage the investments of more funds which aim to hold assets for an extended and liabilities (risk) together in order to change in the price of a fixed basket of goods institution. The custodian keeps a register of liabilities. Used as a measure of the scheme’s than one investor on a collective basis. Each period of time need to assess the impact of a improve long-term fund performance, stabilise and services. The difference between CPI and holdings and will collect income and distribute ability to meet its future liabilities. investor is allocated units which are revalued variety of potential influences, some of which are contributions and reduce deficits. retail price index (RPI) is that CPI excludes some monies according to client instructions. at regular intervals. Income from these systemic risks which are not possible to predict • A partnership which is open to other LGPS items used in RPI such as mortgage interest Index-linked securities investments is normally returned to the pooled with certainty (such as climate change). and public sector funds to join as owner payments and council tax, and includes other Debtors fund and increases the value of the units. Investments in stock where the interest shareholders or as investors only in LPP’s pool. items not used in RPI. The basket of goods and Amounts owed to the Pension Fund which Investors who integrate the consideration of payments and the final redemption proceeds services on which CPI is based is expected to Private equity had not been paid by the date of the net assets ESG characteristics are seeking insight into are linked to the retail price index. Such stocks provide lower, less volatile, inflation increases. Market value statement. future risks and opportunities which may be provide protection against inflation. Shares in un-quoted companies. The price at which an investment can be bought financially material to the investments they Corporate governance or sold at a given date. Deficit are already holding or those that are under Infrastructure Property The authoritative rules and controls in consideration. The extent to which the Fund’s past service The public facilities and services needed to Myners review All buildings and land that the Fund owns, place within an organisation required to Environmental criteria look at how a liabilities exceed the value of the Fund’s assets. support residential development, including including pooled property funds. promote openness, inclusivity, integrity and company performs as a steward of the natural highways, bridges, schools and sewer and Review carried out by Paul Myners on behalf accountability. Defined benefit environment both as a consumer of resources water systems. A term usually associated with of the Chancellor of the UK government. The and a producer of goods, services and waste. review published in March 2001, investigated Quantitative easing An employer sponsored retirement plan where investment in transport, power and utilities Creditors Social criteria examine how a company manages projects. the challenges facing institutional investment The introduction of new money into the employee benefits are sorted out based on a relationships with its employees, suppliers, decision making. money supply by a central bank. The central Amounts owed by the Pension Fund for work formula using factors such as salary history and carried out, goods received or services provided, customers and the communities where it Investment management expenses bank increases the money supply and buys duration of employment. Public sector pension operates. Over the counter (OTC) government bonds. which has not been paid by the date of the net schemes, including the LGPS are defined benefit. All expenses relating to managing the Fund’s assets statement. Governance criteria examine a company’s A security traded in some context other than on a management and decision-making framework, investments. Related party Discount rate formal exchange. The phrase “over the counter” Credit strategies the corporate culture this creates and the quality can be used to refer to stocks that trade via a A person or organisation which has influence The rate of interest used to convert a future cash of corporate leadership offered. Investment strategy Credit strategies involve investing in loans or the dealer network as opposed to on a centralised over another person or organisation. amount to a present day value. It is a measure of ESG is often used as a catch-all term for the Investor’s long-term distribution of assets among exchange. It also refers to debt securities and provision of other credit. At the safest end this the ‘time value’ of money. approach to assessing these various criteria various asset classes taking into consideration, this may involve investing in Gilts – debt issued other financial instruments such as derivatives, Responsible investment as part of being an informed and responsible goals of the Fund, attitude to risk and timescale. which are traded through a dealer network. by government, where risk is perceived to be Emerging markets investor. An approach to investment which recognises minimal but where returns are very low; at the that the consideration of environmental, social Developing economies in Latin America, Africa, Liabilities Past service liability other end of the spectrum are loans to heavily Financial instrument and governance factors forms an important indebted companies or even companies who Asia and the Middle East as well as areas of Financial liabilities are debts owed to creditors The value, in present day terms, of the benefits part of the evaluation of the future risks and have credit difficulties, where there are higher Europe and the Far East. Investment returns A contract between two parties that involves for outstanding payments due to be paid. accrued by members up to the valuation date. opportunities facing investee companies. levels of risk but where significantly enhanced within these markets tend to be more volatile a monetary exchange for some type of debt or Pension liabilities are the pension benefits Calculated on the basis of a set of assumptions Responsible Investors seek to understand returns are available. than those in more established markets. asset. and payments that are due to be paid when agreed between the administering authority and the influences that are likely to impact the someone retires. the actuary. performance of investments during their period Currency forward Equities Fixed interest securities of ownership in order to assess the balance of LPP – Local Pensions Partnership An agreement between two counterparties to Ordinary shares in UK and overseas companies Investments in stocks mainly issued by Pension boards risks relative to returns. buy/sell a specified quantity of the underlying traded on a stock exchange. Shareholders have governments, which guarantee a fixed rate of The Local Pensions Partnership (LPP) is a The role of each board is to help ensure Pension funds invest the retirement savings of currency at a specified future date. Contracts an interest in the profits of the company and are interest. collaboration between two successful LGPS each scheme complies with governance and scheme members in order to fund the benefits are settled in cash on the expiration date. entitled to vote at shareholders’ meetings. funds – Lancashire County Pension Fund and administration requirements. They may have they are entitled to receive in the future. There Future service contribution rate London Pensions Fund Authority, with the goals additional duties, if scheme or other regulations is an underlying fiduciary duty to protect the Current assets and liabilities ESG (environmental, social and The contribution rate payable by an employer, of creating: so specify. Pension boards need to have an financial interests of scheme beneficiaries which corporate governance) expressed as a % of pensionable pay. This rate • A best-in-class, end-to-end pensions services equal number of employer representatives and is exercised through the approach to investment Current assets are cash, cash equivalents and organisation for public sector funds; LPP Responsible Investors understand that is the rate which will be sufficient to meet the member representatives. They may also have and the evaluation of risks and opportunities as items that can be readily converted into cash. currently provide pensions administration ESG characteristics are financially material costs of new benefits being accrued by active other types of members, such as independent part of investment stewardship. Current liabilities are items that are due for services to 13 funds, including LGPS, fire and to investment decision-making if they are members in the future. experts. All pension board members have a duty payment immediately or in the short term. police schemes. likely to have an impact on a company and to act in accordance with scheme regulations and other governing documents.
104 Lancashire County Pension Fund Annual Report 2018/19 105 L Appendices
Scheduled bodies Service level agreement Triennial actuarial valuation Organisations which are listed in parts 1 and 2 A commitment between a service provider (for Every three years the actuary formally reviews of schedule 2 to the LGPS Regulations 2013. example LPP) and a client (for example, the the assets and liabilities of the Lancashire LGPS These bodies automatically have the right to Fund) that defines exactly which services will be scheme and produces a report on the scheme’s offer LGPS membership to eligible employees. provided and the level or standard expected for financial position. Organisations listed in part 1 are required to those services. enrol eligible employees into the LGPS. This Venture capital list includes, but is not limited to: County and Stock lending Investment in a company that is at a relatively District Councils, Combined Authorities, Fire The act of loaning securities to another investor early stage of development and is not listed on a and Rescue Authorities, Police and Crime in return for a fee. When a security is loaned the stock exchange. Commissioners, Chief Constables, Further and ownership is also transferred to the borrower. Higher Education Corporations, Sixth Form 50:50 scheme Colleges and Academies. Transfer values In the LGPS, active members are given an option If an organisation is listed in part 2 it can choose The value of a pension scheme members to accrue a lower benefit in return for paying a to offer membership to all or some employees. benefits available to buy benefits in another lower level of contribution. This list includes, but is not limited to: Parish scheme. Councils, subsidiaries of County or District Councils, Other precepting authorities not listed in Part 1.
106 Lancashire County Pension Fund Annual Report 2018/19 107 1
Appendix 1 Contributions Received Contributions Received Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit (£’000) (£’000) recovery (£’000) (£’000) recovery Scheme employers with active members at 31 March 2019 (£’000) (£’000) Sacred Heart Primary 22 10 - Burnley College 601 285 130 St Albans Roman Catholic Primary 31 14 - Nelson and Colne College 748 333 146 St Barnabas & St Pauls Church of 71 30 - Myerscough College 816 343 172 Contributions Received Contributions Received England Primary Blackpool Sixth Form College 205 103 - Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit St James Church of England 44 19 - Cardinal Newman College 318 146 51 (£’000) (£’000) recovery (£’000) (£’000) recovery Primary School Blackburn St Mary’s 184 75 9 (£’000) (£’000) St Michael with St John Church 26 12 - QEGS Blackburn Academy 144 51 70 Morecambe Road School 165 47 - of England Primary School Total active employers 96,816 58,651 11,414 Lancs Fire and Rescue Service 765 338 -324 County Council 32,575 24,077 - Mount Carmel 150 45 - St Silas Church of England 37 16 - Primary Penwortham Town Council 14 8 - New Longton All Saints Church 38 11 - Lancashire County Council 32 14,657 - Blackpool Coastal Housing 486 268 - (excluding schools) of England Primary School Turncroft Nursery 19 9 - Pilling Parish Council 9 2 - Lancashire County Council 28,426 8,195 - Ormskirk School 221 65 - Blackpool Borough Council 5 3,547 - excluding Schools Kirkland Parish Council 1 - - Schools Our Lady Queen of Peace 121 37 - Catterall Parish Council 4 1 - Archbishop Temple 103 32 - Peel Park 158 45 - Blackpool Borough Council - 381 - Schools Garstang Town Council 6 2 - Ashton Community Science 154 47 - Rhyddings School Accrington 134 42 - College Burnley Borough Council 910 389 - Accrington Academy 121 62 - St Andrews Church of England 82 23 - Baines High School 107 31 - Primary School Chorley Borough Council 1,106 510 841 ANWET (Darwen Aldridge 264 151 - Community) Balshaws Church of England 113 34 - St Richards Roman Catholic 43 12 - Fylde Borough Council - 352 - High School Primary School Hyndburn Borough Council 1,902 431 - Fulwood Academy 82 43 - St Anne’s on Sea Town Council 18 7 1 Barrowford Primary School 92 26 - The Loyne Specialist School 199 58 - Lancaster City Council - 980 - Lancs Sports Partners Ltd 73 47 - Blessed Trinity Roman Catholic 206 62 - Walton Le Dale 99 33 - Pendle Borough Council 749 326 - College Lancaster Girls Grammar School 93 39 43 Westgate Primary School 136 38 - Preston City Council 2,229 917 - (Academy) Brownedge St Marys 164 49 - Scheduled bodies (167) 52,475 29,084 8,833 Ribble Valley Borough Council 768 312 180 Lancaster Royal Girls School 185 65 69 Cardinal Allen 136 44 - Rossendale Borough Council - 254 - (Academy) Carnforth High School 21 6 - Blackburn With Darwen Borough 7,981 3,787 - South Ribble Borough Council 930 410 568 Clitheroe Royal Girls School 114 41 60 Central Lancaster High School 124 37 - Council West Lancashire Borough 2,126 760 - (Academy) Delph Side 58 16 - Ashleigh Primary 39 17 - Council Hodgson Academy 151 63 45 Haslingden High School 255 77 - Audley County Infant 65 28 - West Lancashire Borough - 72 - Council OCL FCAT (Hambleton Primary 25 12 7 Heysham High 46 15 - Avondale County Primary 66 29 - Academy) Wyre Borough Council - 420 - Hillside Specialist School 169 49 - Blackburn Central High School 127 59 - Ripley St Thomas Church of 231 80 45 Hollins Technology College 182 55 - Blackburn the Redeemer Church 63 26 - Blackpool Transport Services Ltd - 32 - England (Academy) Hutton Church of England 116 34 - of England Primary School Edge Hill University 3,579 1,675 809 St Michael’s CE High (Academy) 96 37 47 Grammar School Brookhouse Primary School 27 11 - University of Central Lancashire 5,327 2,517 985 ATCT (Bowland High Academy 103 35 30 John Cross 22 6 - Cedars Primary 47 20 - Lancaster & Morecambe College 518 207 126 Trust) Lea Endowed Church of England 36 10 - Crosshill School 30 14 - Blackpool & The Fylde College 1,644 746 200 St Wilfrid’s Church of England 115 49 95 Primary Hoddlesden St Paul’s -9 -4 - Preston College 615 294 269 Academy Leyland St James Church of 46 13 - Holy Trinity Church of England 44 19 - Runshaw College 808 313 89 Lostock Hall Academy Trust 78 27 31 England Primary Primary Blackburn College 1,016 452 86 St Christopher’s Church of 179 77 91 England (Academy) Moor Park High 128 39 - Longshaw County Infant 47 21 - Accrington & Rossendale 227 91 186 Morecambe High 293 85 - Longshaw County Junior 51 22 - College Bishop Rawstorne High Academy 76 26 30
108 Lancashire County Pension Fund Annual Report 2018/19 109 1
Contributions Received Contributions Received Contributions Received Contributions Received Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit (£’000) (£’000) recovery (£’000) (£’000) recovery (£’000) (£’000) recovery (£’000) (£’000) recovery (£’000) (£’000) (£’000) (£’000) Belthorn Primary Academy 49 15 8 Langdale Free School 13 5 - BFET (Marton Primary Academy) 59 20 24 Clayton-Le-Woods Parish 4 1 - Garstang Community Academy 92 30 29 Star Academies (Olive 26 20 - CSCST (Burnley High Free 34 14 - Council Parbold Douglas Church of 30 11 10 Blackburn) School) FCAT (Mereside) 74 27 29 England Academy Star Academies (Olive London) 30 23 - Cliviger Parish Council - - - Tor View Specialist Learning 186 84 59 FCAT (Westcliff Prim Academy) 40 15 13 Education Partnership Trust (The 63 27 23 Star Academies Islam Girls High 70 28 19 Community All Saints CE Prim Sch 43 17 17 Heights) School FCAT (Westminster Primary 60 24 37 (Academy) Preesall Town Council 8 2 - Cidari Education Trust 26 25 - Academy) Tarleton Academy 96 42 31 BFET (South Shore Academy) 112 46 50 Cidari Education Ltd (Baines 59 27 41 Mosaic Academy Trust 92 36 31 FCAT (Montgomery Academy) 119 50 57 Darwen Town Council 1 - - Endowed) Cidari (Newchurch St Mary’s 10 4 3 Primary School) Morecambe Town Council 5 2 - Habergham Eaves Parish Council - - - Cidari Education Ltd (Marsden 35 12 10 St John) Star Academies - Eden Girls 24 12 - Parklands High School Academy 113 48 27 Old Laund Booth Parish Council - - - ANWET (Sudell Primary 39 11 19 Manchester Penwortham Priory Academy 106 41 18 Police & Crime Commissioner 87 50 4 Academy) Star Academies - Eden Boys 14 6 - Albany Academy 110 39 25 Blackpool MAT (Revoe) 103 41 49 Blackpool Housing Company Ltd 94 51 - Manchester Norbreck Primary Academy 82 33 19 Cidari Education (St Georges) 70 28 41 Pendle Education Trust 52 22 26 Admitted bodies (142) 11,766 5,490 2,581 Waterloo Primary Academy 129 54 29 ATCT (Witton Park Academy 119 45 58 (Castercliff) UCST (AKS Arnold) 29 11 27 Hawes Side Academy 93 34 18 Trust) Education Partnership Trust 100 35 21 Galloways Society for Blind 2 1 17 The Lancashire Colleges Ltd 21 12 - Cidari Education (Lukes & 37 14 29 (Coal Clough) Philips) Lancaster University 4,160 1,914 523 Academy at Worden 55 23 14 Star Academies (Eden Boys’ 17 10 - Lancashire County Branch - - - Cidari Education Ltd (Darwen 38 16 18 Wensley Fold Church of England 76 31 31 School Preston) Unison St James Church of England Primary Academy Primary) Star Academies (Eden Girls’ 52 28 - North Western Inshore Fisheries 99 39 26 Star Academies 214 169 - School Slough) Cidari Education Ltd (St 27 10 21 & Conservation Authority Bacup Rawtenstall Grammar 114 47 23 Barnabas Church of England Star Academies (Eden Boys’ 31 20 - UCST (AKS Lytham) 27 13 - School (Academy) Primary) School Birmingham) University of Cumbria 1,800 851 631 Roseacre Primary Academy 75 28 24 Cidari Education Ltd (St Aidans 28 11 18 FCAT (Blackpool Gateway 36 17 5 Whitworth Town Council 5 2 2 Star Academies Islam Boys Free 27 16 1 Primary School) Academy) Kirkham Grammar School 104 31 30 School Blessed Edward MAT (St Marys) 144 57 48 Eden School 14 8 2 (Independent) Thames Primary Academy 96 39 30 Blessed Edward MAT (St 49 18 26 Whittle le Woods Parish Council 2 1 - Caritas Care Limited 266 109 68 Maharishi School (Free School) 47 15 - Cuthberts) Education Partnership Trust 131 49 69 Community Council of 24 9 28 (Pleckgate High School) Pendle Education Trust - Colne 72 24 15 FCAT (Aspire Academy) 112 40 50 Lancashire Primet Blessed Edward MAT (Christ the 36 12 12 Freckleton Parish Council 1 - - Progress Housing Group 209 117 - Pendle Education Trust - Walter 75 28 15 King) PET (West Craven) 81 27 19 The Omerod Home Trust Ltd - - 195 Street ANWET (Darwen Vale 103 40 67 Star Academies Highfield 118 44 60 Preston Care and Repair 4 2 - Moorside Community Academy 65 25 11 Academy) Humanities Calico Housing Ltd - - 631 Fylde Coast Academy Trust 43 20 2 Star Academies Eden Girls’ 27 16 1 Pendle Education Trust 35 17 1 School Waltham Pendle Leisure Trust Ltd 245 116 25 Blackpool MAT (Devonshire 98 35 38 Education Partnership Trust 30 24 - Star Academies Eden Girls’ 38 29 - Twin Valley Homes Ltd 1,507 684 91 Academy) Blessed Edward Trust 12 8 - School Coventry Leisure in Hyndburn 113 52 50 Blackpool MAT (Park Academy) 130 58 57 Star Academies Olive Bolton 10 5 - Star Academies Eden Boys’ 62 27 - Sure Start Hyndburn 44 22 23 Blackpool MAT (Anchorsholme 86 31 36 School Bolton Star Academies Olive Preston 17 10 - Academy) Blackpool Zoo (Grant Leisure) 30 15 - Star Academies Olive 19 16 - Lancashire Chief Constable 7,356 3,314 2,000 FCAT (Unity Academy) 155 66 62 Birmingham Rossendale Leisure Trust 25 14 -
110 Lancashire County Pension Fund Annual Report 2018/19 111 1
Contributions Received Contributions Received Contributions Received Contributions Received Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit Employer Name Employer Employee Deficit (£’000) (£’000) recovery (£’000) (£’000) recovery (£’000) (£’000) recovery (£’000) (£’000) recovery (£’000) (£’000) (£’000) (£’000) Marketing Lancashire Ltd 38 25 - Mellors (Brinscall) 6 2 - Churchill (Clayton Brook) 1 - - Bay Learning Trust (Carnforth 78 30 23 Liberata UK Ltd (Pendle) 141 71 - Burnley Leisure 203 107 - RCCN (Burscough) 1 1 - High School) West Lancs Community Leisure - 44 - CG Cleaning (Kennington Road) 2 - - Maxim (Acorns Primary School) 3 1 - Mellors (St Michaels CE 24 8 - Academy Trust) South Ribble Community Leisure 112 48 83 CG Cleaning (St Augustines) - - - Elite CES (Hambleton) 3 1 - Star Academies (Bay Leadership 62 27 20 Community Gateway Association 216 115 - Compass Contract Services (UK) 25 6 - Elite CES Ltd (St Annes) 2 1 - Academies) Ltd Ltd Bulloughs (BFET Marton) 2 - - Compass CS (Mer/Mon/Uni) 32 8 - Bulloughs (Our Lady) - - - Caterlink (Mount Pleasant 1 1 - CG Cleaning (Intack) - - - School) RCCN (St John the Baptist) 2 1 - Chorley Community Housing Ltd 93 53 - Mellors (Delph Side) 2 1 - Maxim (St Joseph’s Primary 2 1 - NSL Ltd.(Lancaster) - 1 - Churchill (Moorside) 2 1 - Mellors (Lostock Hall Academy) 6 2 - School) Service Alliance (St Wilfrid) 1 1 - Capita(Rossendale BC Transfer) - 10 - Maxim (Lancaster Girls 1 - - Pendle Education Trust 39 15 12 Blackpool, Fylde and Wyre Credit 10 4 - Grammar) Consultant Caterers Ltd 4 5 - (Casterton Primary Academy) Union Bootstrap Enterprises Ltd 1 8 - Maxim (Lancaster Royal 11 3 - Mellors (Tarleton Community 8 3 - QEGS Blackburn Ltd 5 2 - Grammar) Alternative Futures Group Ltd - 8 - PS) Mellors (Queens Drive) 1 - - Maxim (Newton Bluecoat) 1 - - Creative Support Ltd - 13 - FCAT (Armfield Academy) 14 5 - Service Alliance (Whalley 1 - - New Progress Housing 373 158 - Maxim (St John with St Michael) 1 - - Primary) Andron (Longridge High School) 7 3 - CG Cleaning (St Teresas) 1 - - Community and Business Partn 35 22 - Maxim (Bolton le Sands Primary 1 - - RCCN (Whitefield) 1 1 - I Care (Home) - 3 - Service Alliance (St Marys RC 1 - - School) Bulloughs (Carr Head Primary) 1 - - Primary) Fylde Coast YMCA (Fylde - 1 - Maxim (Kelbrook Primary 1 1 - TUPE) FCC Environment 19 6 - Capita (Property & 20 9 - School) County Councils Network 13 17 1 Infrastructure) Cofely FM Ltd (Lend Lease) 35 12 - Endeavour LT (Burscough Priory 32 12 11 Urbaser Ltd 76 19 - Maxim (St Georges CE Primary) 1 - - Creative Support Ltd (Midway) 20 9 - Academy) Service Alliance (ClithPendle) 1 - - Compass CS Ltd (Highfield) 9 2 - Mellor’s (Bishop Rawstorne) 6 2 - Maxim (St Augustines) 1 - - I Care 15 7 - Greenwich Leisure Limited 131 49 - Mellor’s (Hambleton Primary S) 1 - - Laneshaw Bridge Primary School 17 6 5 Ind Living Fund (Blackpool BC) 6 2 - (Preston City) Andron (formerly Solar) - 1 - Maxim (Helmshore Primary 1 - - Elite CES (Fulwood&Cadley) 1 - - Cockerham Parish Council - - - School) Cofely FM Ltd (Pleckgate) 2 2 - Elite CES Ltd(Moor Nook 3 1 - Nether Wyresdale Parish Council - - - Andron (Cidari - St Georges 8 2 - Liberata UK Ltd (Burnley) 230 84 - School) Aspens Services (BEBC St - - - School) Essential Fleet Services Ltd - 9 - Elite CES Ltd (Carr Hill) 3 1 - Marys) Blacko Primary School 9 3 2 Elite Cleaning and Environment 1 1 - Service Alliance (St Mary Mag) 2 1 - Clarets in the Community Ltd 3 1 - Colne Park High School 63 25 19 Eric Wright FM - Site Supervisors - 3 - Compass Contract Services 4 1 - Highfield HC Churchill (Morecambe Bay) 1 - - Lord Street Primary School 34 13 11 (Hodgson Academy) Consultant Cleaners (St James) 1 1 - The Pennine Trust 8 3 2 Cofely FM Ltd (Witton Park) 4 1 - Mellors (Parklands High School) 9 2 - Compass CS (Preston) 19 5 - Mellors (Fulwood Academy) - - 7 Mellors (Little Hoole) 2 1 - Maxim (Mayfield Primary School) 1 - - Lend Lease Construction 1 - - Maxim (Newchurch St Nichol) 1 - - Mellors (Holy Cross) 8 3 - (EMEA) Ltd (Phase 3) United Learning (The Hyndburn 84 34 18 Lend Lease Con. (EMEA) 2 1 - Academy) (Fulwood) Local Pensions Partnership 119 84 - Investments Simply Clean (NW) Ltd - - - Cofely FM Ltd (Blake/Cross) - 1 - Local Pensions Partnership 379 196 - Calico (Preston Harris Museum) 1 - - Service Alliance Ltd (Altham) 1 - - Premiserv (St Peters) 1 - - Orian (Larches House) 1 - - Lancashire Care Foundation 73 30 - 5AM Contract Cleaning 2 1 - Noonan (Hyndburn CCTV) 8 3 - Service Alliance (Ribblesdale) 2 - - (Blackpool Coastal)
112 Lancashire County Pension Fund Annual Report 2018/19 113 2
Appendix 2
Lancashire County Pension Fund Governance Policy Statement – Updated January 2018
Introduction are the wider responsibility of the County Panel to consider future Investment Policies (other than Investment, Administration: e. Admissions and Terminations. 1. This is the Governance Policy Statement Council as an employing authority and policy for the Fund; Administration and Funding – see 17. To approve the Annual Administration 26. To approve Scheme Funding Advice are included within the statement for of Lancashire County Pension Fund, c. Monitor and review investment activity below): Report. 27. To review ongoing funding updates for completeness. and the performance of the Fund; and administered by Lancashire County 11. To approve the following key policy 18. To approve the Pensions Administration potential cash contribution implications Council, the administering authority. d. Present an annual report to the Full documents: Governance of the Strategy Statement. Procurement: All Local Government Pension Scheme Lancashire County Pension Council on the state of the Fund and a. A rolling 3 Year Strategic Plan for the 19. To monitor the performance of the 28. To approve the procurement process, (LGPS) Funds in England and Wales are Fund on the investment activities during the Fund; preceding year. pensions administration function. tender award criteria and evaluation required to publish a Statement under b. The Statement of Investment 5. Under the cabinet structure in local 20. To authorise the payment of any methodology in advance of any tender regulation 55 of the LGPS Regulations 3. The Committee shall meet at least Principles 2013. government, management of the pension quarterly, or otherwise as necessary, with statutory pensions, gratuities, grants, being invited for the appointment of fund is a non-executive function and this c. Governance Policy Statement; external support, including: 2. This statement has been prepared by the the Investment Panel in attendance. etc. under the provisions of the is reflected in the council’s constitution. d. Governance Compliance Statement; Superannuation and Pensions Acts and a. an external corporate governance administering authority in consultation The Pension Fund Committee reports 4. Meetings of the Committee shall be e. Pension Fund Annual Report; with appropriate interested persons. open to the public, but the public may be Regulations and any Local Acts. adviser; directly to Full Council. The Head f. Communication Policy statement; excluded where information of an exempt 21. To approve applications for early b. an external Fund custodian; Purpose of the Governance of Fund is designated as the officer g. Internal Dispute Resolution responsible for the management of the or confidential nature is being discussed payment of preserved pension benefits c. external performance measurement Policy Statement – see Access to Information Procedure Procedure; on compassionate grounds. advisers; Pension Fund. h. Death Grant Procedure; 3. The regulations regarding governance Rules set out at Appendix ‘H’ to the 22. To approve payments under the County d. the Fund Actuary; and The Pension Fund i. Bulk Transfer Payment Policy; policy statements require an County Council’s Constitution. of Lancashire Act 1984. e. the Fund’s AVC Provider administering authority, after Committee j. Commutation policy (small pensions); General: 23. To determine the actual injury Training: consultation with such persons as (Non-executive committee) k. Transfer policy; 5. To exercise Lancashire County Council’s allowance payable on each individual 29. To approve the annual Training Plan they consider appropriate, to prepare, l. Abatement policy; and maintain, publish and keep under Composition and role: responsibility for the management of qualifying case of injury or disease, both for members of the Pension Fund 1. The Pension Fund Committee (“the the Fund, including the administration m. Any other discretionary policies as retrospective and for the future. Committee and actively participate in review a written statement setting out: required under LGPS regulations (a) whether the authority delegates its Committee”) comprises twelve County of benefits and strategic management of 24. To review annually the actual amounts training opportunities. Fund assets and liabilities. Investment: functions, or part of its functions under Councillors and seven voting co-optees of injury allowances payable under the Local Pensions Partnership Ltd (LPPL): these Regulations to a committee, a sub- representing the following organisations: 6. To determine which pension related 12. To determine the strategic asset Local Government Superannuation allocation policy, giving due recognition LPPL was formed in partnership between committee or an officer of the authority; a. One co-optee representing the Further functions and responsibilities should be Regulations, as amended, to employees the County Council and the London (b) if the authority does so— (i) the terms, and Higher Education sector in exercised under a Scheme of Delegation to the options made available by the who have sustained injuries or Local Pensions Partnership Ltd (LPPL). Pension Funds Authority (LPFA) to carry structure and operational procedures of Lancashire; to the Head of the LCPF, the Council’s contracted diseases, as a result of out certain pension functions such as the delegation, (ii) the frequency of any b. One co-optee from Blackburn with s.151 Officer and the Director of 13. To monitor the performance of the anything they were required to do in investment activity and administration committee or sub-committee meetings, Darwen Council; Corporate Services. Fund’s investments and ensure that best carrying out their work and to make any on behalf of the two partner authorities. (iii) whether such a committee or sub- c. One co-optee from Blackpool Council; 7. To review governance arrangements and practice is being adopted and value for changes appropriate to reflect changes The relationship between the County committee includes representatives of d. Two co-optees representing Trade the efficient and effective use of external money is being delivered in the relevant financial circumstances Council and LPFA is governed by a Scheme employers or members, and Unions; and advisors to ensure good decision-making. 14. To submit an annual report to the Full of the payee. number of agreements one of which (the if so, whether those representatives Council on the performance and state Funding: Shareholders Agreement dated [8th April have voting rights; (c) the extent to e. Two co-optees representing the 8. To appoint a minimum of two suitable Lancashire Borough and City Councils persons to an Investment Panel through of the Fund and on the investment 25. To approve the Funding Strategy 2016) reserves certain key matters for the which a delegation, or the absence of activities during the year. determination of the County Council and a delegation, complies with guidance a sub committee convened for that Statement which shall include the 2. The role of the Committee is to: purpose. 15. To approve and review on a regular Fund’s policy in respect of: LPFA rather than LPPL (the “Reserved given by the Secretary of State and, to Matters”). References to delegated powers the extent that it does not so comply, the a. Fulfil the role of Scheme Manager, as 9. To establish sub-committees and panels basis an overall Investment Strategy a. the Funding Target; and subsidiary Strategies for such asset relating to LPPL address the Reserved reasons for not complying; and (d) details set out in regulations, of the Lancashire as necessary to undertake any part of the b. the collection of employee Matters. Unless stipulated, any reference of the terms, structure and operational County Pension Fund (“the Fund” or Committee’s functions. classes as the Investment Panel consider contributions; appropriate. to the “Agreement” is a reference to the procedures relating to the local pension “LCPF”); 10. To receive an annual report from the c. the collection of employer Shareholders Agreement dated 8th April board established under regulation 53(4) b. Establish policies in relation to Lancashire Local Pensions Board on the 16. To have overall responsibility for contributions; 2016. 4. Certain functions set out in the statement investment management, which shall nature and effect of its activities. investment policy. d. the collection of additional employer are not specific to the Pension Fund but include meeting with the Investment contributions; and
114 Lancashire County Pension Fund Annual Report 2018/19 115 2
Appendix 2
Lancashire County Pension Fund Governance Policy Statement – Updated January 2018
Incorporation or winding up of Shares, shareholder loans and 45. To approve the commencement or Statement of Investment Principles 1. Matters reserved to Full 2. Matters reserved to the subsidiaries: constitutional: the taking of steps to commence any • consider appropriate risk management Council Employment Committee insolvency proceedings under any law 30. To approve, with the exception to 37. To pay or declare any dividend (other strategies to include the matching Local Pensions Partnership Local Pensions Partnership Ltd (LPPL): the formation of vehicles which are than as expressly provided for in the relating to insolvency anywhere in the of pension liabilities with suitable Ltd (LPPL): Approval of LPPL’s Remuneration Policy necessary for any transactional, Shareholder agreement) or other world unless LPPL is at the relevant investments, possibly involving operational or tax efficiency reasons distribution to the Shareholders or time unable to pay its debts as they fall derivatives, and where necessary make Changes to the Articles or any Share 1. To approve the remuneration policy of in the sole opinion of the Board, any redeem or buy any Shares or otherwise due or the value of its assets is less than recommendations to the Pension Fund rights impacting on any pre-approval the LPPL directors and staff, other than incorporation of any new subsidiary of reorganise the share capital of LPPL. its liabilities, including its contingent Committee; matter(s) for LPPL Non-Executive Directors and prospective liabilities and the LPPL or any of its Group Companies 38. To admit any person whether by • consider foreign exchange hedging 1. Approval to alter any of the provisions of Changes to Directors’ Remuneration or any liquidation or winding up of directors reasonably consider (taking the LPPL Articles (including the articles Policy subscription or transfer as a member into account their fiduciary duties) that strategies relating to the equity and/ LLP or any of its Group Companies. of the LPPL subsidiary companies) 2. To approve the payment of any fees, of LPPL save as provided for in the it ought to be wound up or it ought to or other asset allocations and where Any acquisition of any shares in any Shareholder Agreement. necessary make recommendations to the or alter any of the rights attaching to remuneration or other sums to or in company, whether through subscription enter into administration. the Shares (including where any such 39. To approve any name change of LPPL Pension Fund committee; respect of the services of any director or transfer, such that the company 46. To enter into any partnership, joint alterations directly or indirectly impacts or vary any such fees or remuneration • monitor and review the investment activity; concerned becomes a Subsidiary of Control, management, directors and venture or profit sharing arrangement on a Reserved Matter) unless such other than in accordance with an agreed and LPPL or any Group Company. employees: with any person or create any share amendment is of a purely administrative remuneration policy approved by both Merger/acquisition of any business 40. To approve the remuneration policy of option scheme. • Review and report on the performance nature. LCC and LPFA. For the avoidance of undertaking: LPPL Non-Executive Directors. 47. To enter into or make any material of the Fund and where necessary make Dilution on Shareholding/Issue of doubt this will not apply to the payment recommendations to the Pension Fund 31. To approve the amalgamation or 41. To approve the appointment or removal variation to any agreement not in the Shares and Share Options or reimbursement of reasonable Committee. merger with any company, association, of any statutory director of LPPL ordinary course of the Business and/or 2. Approval to reduce or cancel any expenses properly incurred by any partnership or legal entity or the otherwise than in accordance with the which is not on an arm’s length basis. The Panel does not exercise any delegated share capital of LPPL, purchase its own statutory director in the course of carrying out his duties in relation to LPPL acquisition of any business undertaking Shareholder Agreement and the Articles 48. To approve the sale, lease (as lessor), powers but instead will provide advice shares, hold any shares in treasury, allot nor to any payment under any indemnity of any other person. of LPPL. licence (as licensor), transfer or to the Head of Fund who will either or agree to allot, whether actually or exercise his/her delegated powers or make by LPPL to which the statutory director is Financial and Business: 42. To enter into or vary any agreement otherwise dispose of any of its material contingently, any of the share capital of recommendations to the Pension Fund LPPL or any security of LPPL convertible entitled under the Articles or under any 32. To approve any Strategic Plan for LPPL for the provision of consultancy, assets. Committee taking into account the advice into share capital, grant any options relevant law. or make any material changes to any management or other services by any 49. To enter into any contract which cannot and views from the Panel. or other rights to subscribe for or to Proposed redundancies of any Group Strategic Plan after its approval. person which will, or is likely to result be terminated within 48 months in, LPPL being managed otherwise than The membership of the panel comprises: convert any security into shares of LPPL employees 33. To approve any extension of the and under which the liability for such by its directors or controlled otherwise or alter the classification of any part of 3. To approve any proposed programme activities of LPPL outside the scope of termination could exceed £1 million. (a) Head of Fund (as Chair) than by its shareholders. the share capital of LPPL save as the of redundancies within LPPL or the Business or close down any business Investment Panel (b) Not less than two independent power to do so without prior Shareholder advisers appointed in accordance with rationalisation of a group of employees operation. 43. To approve the move of the central The Investment Panel (“the Panel”) provides approval is specifically provided for in the arrangements determined by the Pension Proposed re-location of any LPPL management and control of LPPL or expert professional advice to the Pension Agreement. 34. To receive the annual accounts of LPPL. Fund committee. employees LPPL’s tax residence outside of the UK. Fund Committee in relation to investment 35. To approve the establishment, provision Creation of any Holdco of LPPL Contract with related parties strategy. The Panel would support the Head The Panel may operate through sub groups 4. To approve any proposed programme or amendment of any pension scheme. 3. To approve the formation of any holding of Fund with the specialist advice required to undertake particular tasks, but will of relocation of a group of employees 44. To enter into or vary any contracts company of LPPL. 36. To give or take any loans, borrowing or or arrangements with any of the by the Pension Fund Committee. formulate recommendations to the Head of outside Lancashire who were previously credit (other than normal trade credit Fund and/or the Pension Fund Committee Change of Company status employees of LCC. Shareholders or Directors or any person The Panel will: in the ordinary course of business) in through meetings of the full Panel. 4. To approve a change of status of LPPL Chief Executive with whom any Shareholder or Director • review the Fund’s long term investment excess of £1,000,000 or cause the from a limited company to a public is connected (whether as director, strategy and where necessary make They may secure specialist advice within 5. To approve the appointment or removal aggregate indebtedness of LPPL to limited company or from a company consultant, shareholder or otherwise) recommendations to the Pension Fund allocated budgets. of the Chief Executive of LPPL or any exceed £5m. limited by shares to any other form of save as anticipated in the various Committee; The Panel will meet at least quarterly, or subsidiary company. legal entity. agreements between the County otherwise as necessary Council, LPFA and LPPL entered into • advise on strategic and/or tactical asset on the 8th April 2016. allocations proposed by LPPL One member of the Panel will attend LPPL • Restrict and control the range of asset investor’s forum on a 6 monthly basis. allocations used by LPPL as set out in the
116 Lancashire County Pension Fund Annual Report 2018/19 117 2
Appendix 2
Lancashire County Pension Fund Governance Policy Statement – Updated January 2018
3. Matters reserved to Matters reserved to the Council’s accordance with arrangements approved k. Admissions and Terminations. carrying out their work and to make any Compliance with Good Practice in Officers S.151 Officer by the Pension Fund Committee. l. Pensions Administration strategy changes appropriate to reflect changes Engagement and Representation in the relevant financial circumstances of The following functions have been As the officer designated under s.151 of 3. In consultation with the Investment statement; The Myners’ first principle states that the payee. delegated to the Head of the Lancashire the Local Government Act 1972 to be Panel, to monitor and review the m. Communication Policy statement; decisions should only be taken by persons County Pension Fund (LCPF), the Director responsible for the proper administration of performance of investments made by n. Internal Dispute Resolution 16. To provide support to the Local Pension or organisations with the skills, information of Corporate Services, and the Council’s the financial affairs of the County Council, LPPL and to report to each meeting of Procedure; Board to enable it to fulfil its role and and resources necessary to take them s.151 Officer as indicated below: for this purpose including the Lancashire the Pension Fund Committee on the o. Death Grant Procedure; responsibilities as defined by sections 5 effectively. Where trustees elect to take County Pension Fund exercise of this delegation. (1) and (2) of the Public Service Pensions investment decisions, they must have The Head of the LCPF, the Director p. Bulk Transfer Payment Policy; Accounts and Records Act 2013. sufficient expertise and appropriate training of Corporate Services, and Council’s 4. To arrange and authorise the provision q. Commutation policy (small pensions); to be able to evaluate critically any advice Local Pensions Partnership Ltd (LPPL): s.151 Officer may allocate or re-allocate 1. To maintain all necessary accounts of appropriate and necessary training r. Transfer policy; and they take. responsibility for exercising powers and records in relation to the Pension for members of the Pension Fund s. Abatement policy To approve the following: Fund save as otherwise discharged Committee including the attendance at Training sessions have been held for (delegated to them by Full Council or the 7. To carry out the administrative functions 17. The appointment or removal of the Pension Fund Committee) to other officers in accordance with arrangements conferences and other similar pension the Pension Fund Committee, usually of the administering authority relating to auditors of LPPL. immediately before or after Committee on their behalf in the interests of effective determined by the Pension Fund fund related events by members of the the Local Government Pension Scheme. corporate management as he/she thinks fit. Committee Pension Fund Committee. 18. The alteration of LPPL’s accounting meetings, together with monthly 8. To approve the payment of death grants reference date. workshops. The sessions cover all aspects of Records of all such authorisations must be Local Pensions Partnership Ltd (LPPL): 5. To accept for admission into the in accordance with the agreed Death funding, investments, Scheme management 19. Any significant change to any of LPPL’s retained and a copy sent to Democratic Shares, shareholder loans and Lancashire County Pension Fund Grant Procedures. and administration and are facilitated by an accounting or reporting practices. Services for retention. The ‘other’ officer(s) constitutional: employees of authorities and bodies appropriate Officer, Investment Manager as prescribed in Regulations including 9. To appoint any required external support to whom a power has been re-allocated 2. Save as provided for in the Shareholders 20. The creation of any Encumbrance over or Fund Actuary. In addition members are transferee and community admissions (subject to the role of the Pension Fund cannot further delegate that power to Agreement, to approve an increase in the the whole or part of the undertaking or encouraged to attend appropriate external which are considered as ‘exceptional Committee and the Investment Panel), another officer. amount of any Shareholder Loans or the assets of LPPL. courses and conferences and report back circumstances’, subject to an approved their terms of office and remit. Any decisions taken under the Scheme variation of the terms of any Shareholder 21. Any item or series of items of capital to the Committee their learning from these Admission Agreement, and subject to 10. To deal with stage 2 appeals under the of Delegation must be recorded on the Loans. expenditure including finance leases but events. any necessary indemnities as appropriate. Internal Dispute Resolution Procedure. electronic decision recording system. 3. To approve the repurchase, repayment, excluding operating leases of more than Under section 102 of the Local Government 6. To prepare and submit the following to 11. To authorise the payment of any statutory Matters reserved to the Director of redemption or cancellation of any £5,000,000. Act 1972, it is for the appointing council to Pension Fund Committee: pensions, gratuities, grants, etc. under Corporate Services Shareholder Loan other than in 22. The entering into or variation of any decide upon the number of members of a the provisions of the Superannuation and accordance with the terms of any Loan a. A rolling 3 Year Strategic Plan for the operating lease either as lessor or lessee, committee and their terms of office. They Agreements Pensions Acts and Regulations and any Agreement, Loan Notes or the terms of Fund; of any plant, property or equipment of a may include committee members who are 1. To enter into or vary any agreement to do Local Acts. the Shareholders Agreement. b. Statement of Investment Principles (to not members of the appointing council and any of the things reserved to the Pension duration exceeding 10 years or involving include policy on the management of 12. To approve applications for early such members may be given voting rights by Fund Committee and to officers under 4. To enter into any agreement with aggregate premium and annual rental cash balances) payment of preserved pension benefits virtue of section 13 of the Local Government the Scheme of Delegation arrangements a Shareholder for the provision of payments in excess of £5m. additional funds or financial support from c. Governance Policy Statement on compassionate grounds. and Housing Act 1989. Local Pensions Partnership Ltd (LPPL): 23. The factor or discount any book debts that Shareholder which differ from the d. Governance Compliance Statement. 13. To approve payments under the County On this basis, it is open to pension Guarantees and Indemnities of LPPL. terms on which the other Shareholder is e. Pension Fund Annual Report, of Lancashire Act 1984 committees to include representatives 24. The making of any agreement or 2. To give any guarantee, suretyship or providing equivalent finance or support. including the Annual Administration from district councils, scheme members 14. To determine the actual injury reach any settlement with any revenue indemnity outside the ordinary course Report. and other lay representatives, with or Matters reserved to the Head of the allowance payable on each individual authorities or any other taxing authority, of business to secure the liabilities of any without voting rights, provided that they Lancashire County Pension Fund f. The Funding Strategy Statement to qualifying case of injury or disease, both or make any claim, disclaimer, election person or assume the obligations of any are eligible to be committee members include the Fund’s policy in respect of: retrospective and for the future. or consent of a material nature for person. As the officer responsible for the (eligibility rules are set out in section 15 of management of the Lancashire County g. the Funding Target; 15. To review annually the actual amounts tax purposes in relation to LPPL, its Disputes and proceedings the Local Government and Housing Act Pension Fund: h. the collection of employee of injury allowances payable under the business, assets or undertaking 3. To commence, settle or defend any claim, contributions; 1989). Membership of the Lancashire 1. To set the appropriate funding target for Local Government Superannuation 25. Any change to the bankers of LPPL. Pension Fund Committee is set out on page proceedings or other litigation brought i. the collection of employer Regulations, as amended, to employees the Fund. 26. Any change to the registered office of 2 of this statement DCLG is committed to by or against LPPL, except in relation to contributions; who have sustained injuries or debt collection [not exceeding £2m,] in 2. To place any monies not allocated to LPPL. ensure that all LGPS committees operate j. the collection of additional employer contracted diseases, as a result of consistently at best practice standards. the ordinary course of the Business. investments on short term deposit in contributions; and anything they were required to do in
118 Lancashire County Pension Fund Annual Report 2018/19 119 2
Appendix 2
Lancashire County Pension Fund Governance Policy Statement – Updated January 2018
Therefore, in addition to the regulatory on the investment side of the scheme as Pension Board of the Lancashire involves but is not limited to oversight and j) To submit in March each year a proposed Members in all categories will only be requirement to produce this Governance well as practical administration issues. County Pension Fund comment on: annual work plan to the Pension Fund appointed to the Board by the Scheme Policy Statement, the LGPS regulations Communication is covered in detail in the Terms of Reference and Delegated i Assist with the development of Committee for the forthcoming financial Manager if they meet the skill and Authorities 1997 were further amended on 30 June Fund’s Communication Strategy Statement. improved customer services year knowledge requirements set out in the 2007 to require administering authorities to Lancashire County Council also provides relevant regulations and guidance, and as Role and remit of the Board. ii monitor performance of k) To carry out any activities relating to the report the extent of compliance to a set of an employer training service to ensure that set out in Section 7 below. a) To assist Lancashire County Council as administration, governance and efficient governance and administration best practice principles to be published by Fund employers, particularly payroll and Administering Authority in its role as investments against key performance of the Fund which the Pension Fund Members of the Board in categories a) iii., DCLG, and where an authority has chosen HR staff are aware and conversant with Scheme Manager: targets and indicators. Committee or Full Council may request and b) i., ii., and iii., shall only be appointed not to comply, to state the reasons why. The their obligations as employing authorities the Board to undertake i. to secure compliance with the LGPS iii Review the effectiveness of processes after all employers or members of the Fund Fund’s statement is set out at Appendix I. and have a sound understanding of LGPS in those categories have been invited to regulation and administration. regulations and any other legislation for the appointment of advisors 2. Membership and Appointment Lancashire County Council is committed relating to the governance and and suppliers to the Administering Process put forward nominations. Where there is With Employees to the widest inclusion of all stakeholders in administration of the LGPS; Authority more than one nomination in any category respect of consultation and communication The Pension Board shall consist of 9 then any nominee who meets the relevant Lancashire County Council provides all ii. to secure compliance with requirements iv Monitor investment costs including outside of the formal governance members and be constituted as follows: knowledge and skills requirement will be members of the scheme with an annual imposed in relation to the LGPS by the custodian and transaction costs. arrangements. The arrangements include; a) 4 employer representatives, of whom: included on a ballot of all members or Pensions Newsletter, which includes a Pensions Regulator; and v Monitor internal and external audit employers in the relevant category. The With Employing Authorities summary of the annual report and financial reports. i. 2 shall be nominated by Lancashire iii. in such other matters as the LGPS winner in such a ballot will be the candidate summary of the scheme. Lancashire County vi Review the Risk Register as it relates to County Council, where these are The ratio of contributors from the various regulations may specify with the greatest number of votes under the Council’s intranet and internet web site the scheme manager function of the councillors or officers they shall meet employing authorities in the Lancashire b) To ensure the effective and efficient “first past the post” method. includes the following fund documents; Authority. the requirements of the relevant County Pension Fund may be analysed as governance and administration of the • Full annual report vii Assist with the development of regulations in relation to avoidance of Members of the Board will serve for a follows LGPS for the Lancashire County Pension conflict with the County Council’s role maximum of 8 years. Other than as a result • Statement of Investment Principles Fund. improved management, administration Scheduled bodies 86% and governance structures and as Administering Authority; of retirement at the expiry of this period the Admitted Bodies 14% • Funding Strategy Statement c) To provide the Scheme Manager with policies. ii. 1 shall be nominated by the Unitary, term of office will come to an end: such information as it requires to ensure City, and Borough Councils and Lancashire County Council hosts an annual In addition various documents are available viii Review the outcome of actuarial a. For employer representatives who are that any member of the Pension Board or the Police and Fire bodies which Employer Forum targeted at the Chief on Lancashire County Council’s intranet reporting and valuations. councillors if they cease to hold office person to be appointed to the Pension are employers within the Lancashire Officers of all employing authorities. At this and internet site including, the LGPS Guide, ix Assist in the development and as a councillor or they are removed Board does not have a conflict of interest. County Pension Fund; and forum Chief Officers are briefed on current latest news updates, and other information monitoring of process improvements and replaced by a resolution of the Full funding, fund performance and actuarial relating to the Scheme and Fund. Lancashire d) To review and scrutinise governance on request of Committee. iii. 1 shall be nominated by all other Council; County Council maintains a working employers within the Fund. matters including the latest valuation. Any processes and procedures to ensure that x Assist in the development of asset b. For employer representatives who are relationship with the unions. The County other topical pension fund matters are the Lancashire County Pension Fund is voting and engagement processes and b) 4 scheme member representatives of not councillors when they cease to be Council’s Joint Negotiating and Consultative also raised at this forum. In December of managed and administered effectively compliance with the UK Stewardship whom: employed by the employing body where Forum may discuss pension issues at actuarial valuation years, a forum is held and efficiently and complies with the Code. i. 2 shall represent and be drawn from they were employed on appointment; its meetings, and invites Pensions and/ code of practice on the governance and between the Fund Actuary and the Fund xi Any other area within the core function active members of the Lancashire or HR representatives to discuss current administration of public service pension c. For scheme member representatives if Employers to discuss the outcome of the (ie. Ensuring effective and efficient County Pension Fund; issues. Trades Unions are consultees of the schemes issued by the Pension Regulator. they cease to be a member of the relevant actuarial valuation and the reasons for governance of the Scheme) the Board ii. 1 shall represent and be drawn from Government in their own right in the same member group. proposed contribution changes and how e) To meet sufficiently regularly to discharge deems appropriate. pensioner members of the Lancashire way as employers and LGPS Administering Each Board member should endeavour they will be applied. its duties and responsibilities effectively, h) To review the outcome of internal and County Pension Fund; and Authorities. In addition to the above the to attend all Board meetings during but not less than four times in any year. external audit reports in relation to the iii. 1 shall represent and be drawn from All employing authorities are kept abreast LGPS Administration Regulations 2008 the year and is expected to attend all Fund. deferred members of the Lancashire of events, such as proposed changes in the includes regulation 65, which sets out the f) To review the key policy documents to meetings. Given the nature of the Board County Pension Fund. regulations and their implications, and they provision for Administering Authorities to ensure they are fit for purpose. i) To make such recommendations to as a supervisory body and the need for are encouraged to get in touch if they have prepare a written statement of ‘its Pensions g) The Pension Board must assist the the Pension Fund Committee and/or c) 1 independent member selected by appropriate knowledge and skills and the questions. Administration Strategy’. Scheme Manager with such other matters Full Council as it considers appropriate the Scheme Manager, who shall not be clear avoidance of conflicts of interest In addition to the briefings outlined above, as the scheme regulations may specify. It in relation to any matter that the Board a member of the Lancashire County substitute members are not permitted. considers may improve the performance of Pension Fund and who shall be appointed Lancashire County Council holds an annual is for scheme regulations and the Scheme In the event of consistent non-attendance the Fund as Chair of the Board. Such appointment Practitioners Conference. The opportunity Manager to determine precisely what the by any Board member, then the tenure of is taken at these meetings to brief attendees Pension Board’s role entails. This roles will only be made following an openly advertised competition for the role. that membership should be reviewed by
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Appendix 2
Lancashire County Pension Fund Governance Policy Statement – Updated January 2018
the other Board members in liaison with the reviewed on a regular basis. Lancashire County Pension Fund Website at 9. Decision making 11. Accountability 14. Definitions Scheme Manager. 7. Knowledge and Skills least 5 working days prior to each meeting. Each member of the Pension Board will have The Pension Board will be collectively and The undernoted terms shall have the Other than by ceasing to be eligible as These may at the discretion of the Scheme an individual voting right but it is expected individually accountable to the Scheme following meaning when used in this A member of the Pension Board must be Manager be edited to exclude items on the set out above, a Board member may only conversant with: the Pension Board will as far as possible Manager. document: be removed from office during a term of grounds that they would either involve the reach a consensus. The Chair of the Pension a) The legislation and associated guidance likely disclosure of exempt information as 12. Expense Reimbursement and “Pension Board” or “Board” appointment by the unanimous agreement Board will not have a final deciding vote. Remuneration of all of the other members. The removal of the Local Government Pension specified in Part 1 of Schedule 12A of the Means the local Pension Board for the Scheme (LGPS). Local Government Act 1972 or it being 10. Publication of Pension Board All members of the Board shall, on Lancashire County Council as administering of the independent member requires the information consent of the Scheme Manager. b) Any document recording policy about confidential for the purposes of Section the production of relevant receipts be authority for the Lancashire County Pension 100A(2) of that Act and/or they represent Scheme members and other interested reimbursed for travel and subsistence Fund as required under the Public Service 3. Quorum the administration of the LGPS which is for the time being adopted by the data covered by the Data Protection Act parties will want to know that the Lancashire expenses they have actually and necessarily Pensions Act 2013 The Board shall not be quorate unless Lancashire County Pension Fund. 1998. County Pension Fund is being efficiently incurred in the conduct of their duties as a “Scheme Manager” the Chair and at least 2 employer and effectively managed. They will also member of the Board, including attendance A member of the Pension Board must have The Scheme Manager shall ensure that a Means the Pension Fund Committee as representatives and 2 scheme member formal record of Pension Board proceedings want to be confident that the Pension at relevant training and development representatives are present. knowledge and understanding of: Board is properly constituted, trained activities. administering authority of the Lancashire is maintained. Subsequent to each meeting County Pension Fund. 4. Code of Conduct and Conflict of a) The law relating to pensions, and the Chair will be asked to approve the and competent in order to comply with Members of the Board shall be reimbursed Interests Policy for Board Members, b) Any other matters which are prescribed minutes for publication as a draft and scheme regulations, the governance a mileage allowance for use of their own car “Chair” Officers and Advisors in regulations. circulation to all members of the Board. and administration of the scheme and at the rate proscribed by HM Revenues and The individual responsible for chairing requirements of the Pension Regulator. The role of Pension Board members It is for individual Pension Board The Pension Board shall produce an Customs from time to time as adopted by meetings of the Board and guiding its requires the highest standards of conduct members to be satisfied that they have Annual Report on both the nature and Up to date information will be posted Lancashire County Council. debates. and therefore the “seven principles of public the appropriate degree of knowledge and effect of its activities for consideration by on the Lancashire County Pension Fund Where members of the Board are in “LGPS” website showing life” will be applied to all Pension Board understanding to enable them to properly the Administering Authority. The contents employment their employer will be able The Local Government Pension Scheme members and embodied in their code of exercise their functions as a member of the of this annual report will be subject to • The names, contact details and other to reclaim from the Lancashire County as constituted by the Local Government conduct. Pension Board. consideration and agreement at a meeting relevant information about the Pension Pension Fund a sum equivalent to salary, Pension Scheme Regulations 2013, the The Code of Conduct and the Board’s In line with this requirement Pension of the Board, but should include, inter alia: Board members; employers’ national insurance contributions Local Government Pension Scheme policy in relation to conflict of interests is Board members are required to be able a) Details of the attendance of members of • How the scheme members are represented and employers’ pension contributions, in (Transitional Provisions, Savings and attached as Annex ‘A’. to demonstrate their knowledge and the Board at meetings; on the Pension Board respect of time spent by the individual in Amendment) Regulations 2014 and understanding and to refresh and keep fulfilling their duties as a member of the The Local Government Pension Scheme 5. Board Review Process b) Details of the training and development • The responsibilities of the Pension Board Board, including attendance at relevant their knowledge up to date. Pension Board activities provided for members of the as a whole; (Management and Investment of Funds) The Board will undertake each year a formal members are therefore required to maintain training and development activities. Regulations 2009 review process to assess how well it and Board and attendance at such activities; • The full terms of reference and policies of a written record of relevant training and The Chair of the Board shall receive a fixed “Scheme” its members are performing with a view to development. c) Details of any recommendations made by the Pension Board and how they operate; annual allowance set initially (2015) at seeking continuous improvement in the the Board to the Scheme Manager and Means the Local Government Pension Pension Board members will undertake • Details of the Pension Board appointment £10,000 pa (in addition to travel and Board’s performance. the Scheme Manager’s response to those process; Scheme as defined under “LGPS” a personal training needs analysis and recommendations; subsistence expenses) to be inflated in April 6. Advisers to the Board regularly review their skills, competencies • Any specific roles and responsibilities of each year by the Retail Price Index for the Review The Board may be supported in its role and and knowledge to identify gaps or d) Details of the costs incurred in the individual Pension Board members. previous September. This document is reviewed following any operation of the Board. responsibilities through the appointment weaknesses. The Scheme Manager will also consider 13. Reporting Breaches material changes to the administering of advisers, in addition to the Scheme Pension Board members will comply with The Board in considering items of business requests for additional information to be authority’s governance policy and was last Manager’s officers and the Fund’s various at its ordinary meetings shall in relation to Any breach brought to the attention of the reviewed in January 2018. the Scheme Manager’s training policy. published or made available to individual Pension Board, whether potential or actual, advisers and shall, subject to any applicable each item consider whether it wishes to scheme members to encourage scheme regulation and legislation from time to time 8. Board Meetings – Notice Minutes and make a recommendation to the Scheme shall be dealt with in accordance with the Reporting member engagement and promote a culture procedure set out in a separate policy in force, consult with such advisers to the Manager, to which the Scheme Manager of openness and transparency. Board and on such terms as it shall see fit to The Scheme Manager shall give notice shall respond at the subsequent meeting. document. help better perform its duties. to all Pension Board members of every The Board shall ensure that the meeting of the Pension Board, and shall performance of the advisers so appointed is ensure that all papers are published on the
122 Lancashire County Pension Fund Annual Report 2018/19 123 2
Appendix ‘A’ Lancashire County Pension Fund Governance Compliance Statement:
Principle Compliance A. Structure (a) the Management of the administration of benefits and strategic management of fund assets clearly rests with the √ main committee established by the appointing Council (b) that representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner Partial (see and deferred members) are members of either the main or secondary committee established to underpin the work of Note 1) the main committee (1) (c) that where a secondary committee or panel has been established, the structure ensures effective communication √ across both levels. (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. B. Representation (a) that all key stakeholders are afforded the opportunity to be represented within the main or secondary committee Partial (see structure. (1) Notes 1 and These include: 2) (i) employing authorities (including non-scheme employers, e.g. admitted bodies) (ii) scheme members (including deferred and pensioner scheme members) (iii) independent professional observers (iv) expert advisers (on an ad hoc basis)
C. Selection (a) that committee or panel members are made fully aware of the status, role and function they are required to perform √ and Role of Lay on either a main or secondary committee. (It is the role of the administering authority to make places available for lay Members members and for the groups to nominate the representatives. The lay members are not there to represent their own local, political or private interest but owe a duty of care to their beneficiaries and are required to act in their best interests at all time.) D. Voting (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. E. Training/ (a) That in relation to the way in which statutory and related decisions are taken by the administering authority, there is a √ Facility time/ clear policy on training, facility time and reimbursement of expenses in respect of members involved in the decision- expenses making process. (b) That where such a policy exists, it applies equally to all members of committees, sub-committees, advisory panels or √ any other form of secondary forum. F. Meetings - (a) that an administering authority’s main committee or committees meet at least quarterly. √ Frequency (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. (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. G. Access (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. H. Scope (a) that administering authorities have taken steps to bring wider scheme issues within the scope of their governance √ arrangements. I. Publicity (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.
Notes - Reasons for partial compliance represented in the composition of the Local Pension Board. 1) Unitary Councils, District Councils and Further and Higher Education employers, are 2) Guidance envisaged that an independent professional observer could be invited to represented. Other admitted bodies only represent 9% of contributors to the Fund and are participate in governance arrangements to enhance the experience, continuity, knowledge, therefore not represented. However, all employers receive a full annual report and are alerted impartiality and performance of committees or panels which would improve the public to important events. Although employee representatives, i.e. Trade Unions, do not formally perception that high standards of governance are a reality and not just an aspiration. This role represent deferred and pensioner scheme members, it is accepted that representation is currently performed by the Fund’s independent advisers and officers and it is not apparent is available to deferred and pensioners members via this route where necessary and/or what added value such an appointment would bring. appropriate. In addition the interests of all scheme members and employers are specifically 124 Lancashire County Pension Fund Annual Report 2018/19 125 3
Appendix 3
Lancashire County Pension Fund Annual Administration report 1 April 2018 to 31 March 2019
1. Introduction 2. Performance Standard Purpose Service Level Agreements performance from April has been below SLA, improvements can be This administration report is produced in accordance with the The SLA performance reported in this document is based on the identified as the months progress. April 66%, May 73%, June 78%, Service Level Agreement (SLA) for the provision of pension types of cases detailed below. However, LPP also process other case July 83%, August 88%, September 88%, October 85%, November administration services to Lancashire County Pension Fund. The types for members of the scheme which are outlined in the SLA or 90%. December 99%, January 93%, February 93%, March 94%. report describes the performance of Your Pension Service (YPS) are critical to providing the pensions administration service. Whilst against the standards set out in the SLA during the period 1 April 2018 to 31 March 2019.
Annual Plan - 2018/2019 Performance Standard (Annual) Cases b/f Cases Within % Within Target Cases & received completed SLA SLA ongoing Estimate benefits within 10 working days 5,978 5,889 5,070 86% 95% 89
Event Responsibility Your Pension Services (YPS) Calculation of retirement benefits within 10 working days * 5,434 4,500 4,000 90% 95% 934
Calculation of death benefits within 10 working days 3,785 3,374 2,809 83% 95% 411 Apr May Jun Jul Aug Sep Oct Dec Jan Feb Mar Implement change in pensioner circumstance by payment 1,343 887 861 97% 95% 456 Application of Pension Increases due date Respond to general correspondence within 10 working days 2,068 1,859 1,563 84% 95% 209 Issue Annual Benefit of receipt Statement to Active Members Action transfers out within 10 working days 2,481 2,378 1,801 76% 95% 103 Issue Annual Benefit Statement to Def Members Action transfers in within 10 working days 2,609 1,916 1,398 73% 95% 693
Issue P60s and Newsletter to Pensions Pay refunds within 10 working days 4,053 3,643 3,369 92% 95% 410 Provide leaver statement within 10 days 6,933 5,649 5,003 89% 95% 1,284 Issue Newsletter to Active Members Amend personal records within 10 working days 2,669 2,542 2,540 99% 95% 127
Complete HMRC Scheme Returns 37,353 32,637 28,414 87% 4,716 Produce annual allowance information in line with HMRC deadline Target Missed
Provide IAS19 data Target Hit
Completed
Due
*The ‘calculation of retirement benefits within 10 working days’ refers to how many cases have been processed during the period. Not all cases processed will result in a pension being paid as members are able to defer payment of their benefits up to age 75. Those that have continued to payment stage are shown in the Customer Service section of the report.
126 Lancashire County Pension Fund Annual Report 2018/19 127 3
Appendix 3
Lancashire County Pension Fund Annual Administration report 1 April 2018 to 31 March 2019
3. Membership 4. Customer Service Retirement Experience Fund membership Elapsed time from notification of retirement to date retirement processed
Lancashire County Pension Fund 31/03/18 31/03/19 Average 53 days to payment of pension New Pensions Number of active scheme members
County council 25,126 25,721 70 Q1 Q2 Q3 Q4 Total
Other employers 26,220 27,422 New Pensioners 474 990 679 570 2,713 53 Total 51,346 53,143 47 43 Number of pensioners The average 70 days to payment of pension reported for Q4 is due to the bulk closure of cases where members could not be contacted, County council 23,722 24,692 most of which were approaching 365 days elapsed time in our case management system. Other employers 23,723 24,651
Total 47,445 49,343
Number of deferred pensioners (includes pending leavers) Q1 Q2 Q3 Q4
County council 37,410 37,691
Other employers 35,873 36,299
Total 73,283 73,990 Compliments/Complaints
Total membership 172,074 176,476 Q1 Q2 Q3 Q4 Total
There were 5,089 pending leavers as at 31/03/2019, which for the purpose of this Compliments 4 3 5 5 17 report have been moved from active status to deferred status. Complaints 49 45 66 48 208 The pending leaver figures for the period ending 31/03/2018 had also been adjusted to 5,955. During the period the service received 17 compliments, these related to the helpful, prompt and professional service provided Q1 Q2 Q3 Q4 by the staff within Your Pension Service. Pending Leavers 5,955 6,278 6,498 5,089 The complaints in general related to scheme rule changes and delays in processing benefits, it is worth noting that this was at times due to pending information from the employer or previous scheme provider.
128 Lancashire County Pension Fund Annual Report 2018/19 129 3
Appendix 3
Lancashire County Pension Fund Annual Administration report 1 April 2018 to 31 March 2019
5. Employer Risk 6. Communications Contact Centre Admissions and Terminations Engagement A dedicated Contact Centre is the first point of contact for both scheme members and employers. Over the period 86.52% of calls Communications are delivered by the Engagement Team, they During the period 1 April 2018 to 31 March 2019 36 new admissions were successfully answered against a target of 90%. Call wait time are the link between Your Pension Service scheme members and to the Fund have been completed. These arose from existing Fund has been amended to measure from when the caller selects an employers. employers contracting out services and academy conversions 33 option in line with industry standard. employers left the Fund in the period. Employers In previous reports the Lancashire County Pension Fund and Cumbria County Pension Fund calls have been recorded together. Employer engagement activity for 1 April 2018 to 31 March 2019 36 New employers completed in the above period The below revised table now provides Lancashire County Pension Fund calls only. Academy Conversions 13 Activity Numbers Delivered Admission Bodies (Contractors) 23 Employer Visit 12 Lancashire County Pension Fund Annual Q4 Other (if there are any) 0 Employer Training 5 Total Calls answered 39,303 10,629 Total 36 Practitioners Conference 1 Connect Rate 86.52% 95.82% 33 Exiting employers completed in the above period Call Waiting (Max) 00:33:22 00:14:09 Charities 2 Scheme member Call Waiting (Avg) 00:03:36 00:01:28 Housing 6 Member engagement activity for 1 April 2018 to 31 March 2019 Talk Time (Avg) 00:04:53 00:05:04 Admission Bodies(Contractors) 23 Other 2 Activity Numbers Delivered Wrap Time (Avg) 00:01:14 00:00:43 Pre Retirement Course 28 Total 33 Total Time on Call (Avg) 00:06:26 00:06:33 Pension Surgery 18 LCPF admissions and exits in progress at 31/03/2019 Scheme Basics 21 Admissions Call Category Academy Conversions 15 Stall Holder 1 Lancashire County Pension Fund Annual Admission Bodies (Contractors) 13 Redundancy Presentation 1 Total 28 General Enquiries 34,353 TUPE Presentation 3 Exits Pensions Online 3,678 Academy Conversions 17 P60 1,272 Housing 1 Total 18 Contact Centre Satisfaction Survey In January we introduced a satisfaction survey to better understand our members satisfaction with the service we provide. Since implementation we have been able to survey 17.12% of our callers with on-boarding now increasing to over 30% on average. Of this 17.12%, 92.46% of them provided us with an indication they were satisfied with our service, providing us with an average score of 4.67 out of 5.
130 Lancashire County Pension Fund Annual Report 2018/19 131 3
Appendix 3
Lancashire County Pension Fund Annual Administration report 1 April 2018 to 31 March 2019
7. My Pension Online (MPO) My Pension Online is the online facility which allows members to My Pension Online was first launched in 2013 and since then manage their Pension online. 58,802 members have signed up to view their pension online. We recently launched a ‘refreshed’ version of My Pension Online which Via My Pension Online members can: aims to enhance the online experience for all members. • Securely update changes to their contact and bank details • Run pension forecasts to assist with retirement planning • View annual benefit statements and other correspondence • View nominated beneficiaries • Access relevant forms and guides • See how their pension is growing • Contact YPS
My Pension Online Membership
80000 70000 60000 50000 40000 30000 20000 31/03/2019 10000 01/04/2018 0 Total Active Total Active Total Deferred Total Deferred Total Total Members Members Pensioners Pensioners Pensioners / Pensioners Signed up Signed Up Spouses / Spouses Signed Up
Employer Services Online (ESS) Currently there are 194 users registered to access the online employer facility this is across 101 employers. In the main, the service is used to view member records and calculate estimate of benefits, including pension strain. **an audit of users is carried out at year end, those who have not accessed ESS within a 12 month period are deleted.
132 Lancashire County Pension Fund Annual Report 2018/19 133 4
Appendix 4
Local Government Pension Scheme - Communication Policy Statement
Introduction Policy Communication Programme This is the Communication Policy Statement of Lancashire County Lancashire County Pension Fund recognises the government’s The Fund will regularly review the format, frequency and method of communication. Pension Fund which is administered by Lancashire County Council; objective to help people save for their retirement and will aim to: - The following programme is currently in use. the administering authority. All Local Government Pension Scheme • Actively encourage the provision of good pension information (LGPS) administering authorities in England and Wales are required and the promotion of pensions in the workplace. to prepare maintain and publish a written statement setting out their Information Stakeholder* Format Frequency Method of distribution policy concerning communications with: - • Increase transparency and build trust, confidence and engagement in pension saving as the norm. Triennial with annual Email, mail, website and face to • Members; Actuarial Valuation All Stakeholders Presentation, formal report, To achieve its aim the administering authority will undertake to: - updates face briefings. • Representatives of members; • Provide clear, accurate and timely communication about the • Prospective members; and Fund Policy and Statements All Stakeholders Website As amended Mail/email Local Government Pension Scheme to all stakeholders.* • Scheme Employers • Actively promote the Scheme to prospective members and Annual Benefit Statements Members Online self service Annual Online/email alert In particular, the statement must set out their policy on: - their employers. Customer Satisfaction Survey All Stakeholders Website Ongoing Click question • The provision of information and publicity about the Scheme • Take a multimedia approach in recognition that different styles to members, representatives of members and Scheme and methods of communication suit different stakeholders On or before employment. Via employer HR/payroll Employers; Member Guides Members Website • Use and encourage the use of electronic/online On request departments Mail/intranet • The format, frequency and method of distributing such communication and information sharing. Employer Updates Employer Website, online As required email/internet information or publicity; and • Support Scheme employers, providing publicity and • The promotion of the Scheme to prospective members and information toolkits, to enable employers to fulfil their Pensioner payslips/P60’s Member Online self service, paper Annually email/mail their employers. responsibility to communicate and share information with members in relation to the Scheme. Employer Guide Employer Website As amended email /internet • Treat information security with the upmost importance. Face to face – In house Employer Training Employer Presentation Webcast On request in line with SLA Employer locations. Website
Factsheets All members Paper/website On request / as required Mail/email/ internet
Individual member information All Stakeholders Paper, Online self service As required Mail, email
Employer information pack Employer Paper/website On Admission Face to Face
Newsletters Members Paper/website Annual Online
Scheme change and legislative All Stakeholder Presentation/webcast Website As required and on request Face to face/internet change
Fund Report and Accounts All Stakeholders Paper/website Annually Mail/email/ internet
Service Level Standards All Stakeholders Website As amended Internet /intranet
Query All Stakeholders Telephone/email/online Mon – Fri Telephone/email/ Online
* Stakeholders are defined as members, representatives of members, prospective members and employers (members are defined as active, deferred or pensioner members).
134 Lancashire County Pension Fund Annual Report 2018/19 135 B4
Appendix 4
Local Government Pension Scheme - Communication Policy Statement
Scheme Regulations and Overriding Legislation Lancashire County Pension Fund undertakes to comply with Local Government Pension Scheme Regulations and the relevant Overriding Legislation; In particular, the Fund undertakes to comply with the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 [2013/2734]. A full list of Scheme and related legislation is set out below: - Local Government Pension Scheme Regulations 2013 [2013/2356] Local Government Pension Scheme (Transitional Provisions and Savings) Regulations 2014 [2014/ ] Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 [2013/2734]
And the following Acts (including relevant secondary legislation made under each Act not mentioned above) Finance Act 2004 [c.12] Pension Schemes Act 1993 [c.48] Pensions Act 1995 [c.26] Pensions Act 2008 [c.30] Public Service Pensions Act 2013 [c.25] Welfare Reform and Pensions Act 1999 [c.30] Pensions (Increase) Act 1971 [c.56] Date Protection Act 1998 [c.29] Review This statement will be reviewed where there is any material change to the Funds policy in respect of communication.
136 Lancashire County Pension Fund Annual Report 2018/19 137 5
Appendix 5 Lancashire County Pension Fund Pension Administration Strategy Statement September 2018
Introduction statutory requirements in connection with to the poor performance of that scheme · in house and external training continues to In this respect the standards to be met are: The Scheme itself sets out a number of This is the Pension Administration Strategy the administration of the scheme; employer. Where this situation arises the be developed and rolled out; · compliance with all requirements set out requirements for the Pension Fund and Statement (Administration Strategy) of · Procedures for improving the methods fund is required to give written notice to the · service standards are maintained, in the Employers’ Guide, as amended from scheme employers to provide information the Lancashire County Pension Fund of passing information between the scheme employer, setting out the reasons improved and regularly monitored. time to time to each other, scheme members and (the Pension Fund) in relation to the administering authority and scheme for believing that additional costs should prospective scheme members, dependents, be recovered, the amount of the additional Performance Standards · information required by the Pension Fund other pension arrangements or other Local Government Pension Scheme employers. to be provided in the standard specified costs, together with the basis on which the The Local Government Pension Scheme regulatory bodies. The following sections (the Scheme), which is administered by Implementation format/form Lancashire County Council (the County additional amount has been calculated. prescribes that certain decisions be on responsibilities set out the locally agreed The Administration Strategy is kept under Council). Scheme Administration taken by either the Pension Fund or the · communications to be in a plain language/ timescales for these requirements. review and revised to keep abreast of scheme employer, in relation to the rights plain English Aims changes in Scheme regulations and Pension Responsibility and entitlements of individual scheme · information provided must be authorised Pension Fund Fund policies and procedures. The Pension Fund is committed to providing The County Council is responsible for members. In order to meet these obligations by an appropriate officer Responsibilties a high quality pension service to both Changes to the Administration Strategy administering the Lancashire County in a timely and accurate manner, and · actions carried out, or information This section outlines the key responsibilities members and scheme employers and to will be made following consultation with Pension Fund. also to comply with overriding disclosure ensure that the Pension Fund is effectively provided, must be within the timescales set of the Pension Fund and the performance employers who, along with the Secretary The County Council delegates its functions requirements, the Pension Fund has agreed governed. The aim of this Administration out in this Administration Strategy. standards scheme employers and scheme of State, will receive a copy of the revised in respect of the Scheme to its Pension levels of performance between itself and Strategy is to set out the roles and members should expect. It is focused on statement. Fund Committee who further delegates the scheme employers which are set out in this Timeliness responsibilities of the Pension Fund and the key activities which scheme employers Regulatory basis administration of the Scheme to the Local Administration Strategy. Overriding legislation dictates minimum and scheme members are involved in and its scheme employers in administering the standards that pension schemes should The Scheme is a statutory scheme, Pensions Partnership under the terms of a Internal quality standards should not be viewed as a complete list of Scheme. It seeks to promote good working meet in providing certain pieces of established by an Act of Parliament. The Service Level Agreement. The Pension Fund and scheme employers all activities. relationships and improve efficiency information to the various parties associated following principal regulations governing the The Pension Fund Committee, in will ensure that all functions and tasks are between the Pension Fund and its scheme with the Scheme. employers. Scheme are shown below: conjunction with the Local Pension Board, carried out to agreed quality standards. are responsible for the monitoring and The efficient and effective delivery of the · The Local Government Pension Scheme review of this Administration Strategy. benefits of the Scheme is dependent on Regulations 2013 [SI 2013/2356] (as sound administrative procedures being amended) Objectives in place between a number of interested · The Local Government Pension Scheme The Pension Fund’s objective in relation parties, including the Pension Fund and (Transitional provisions, savings and to administration is to deliver an efficient, scheme employers. The Administration amendment) Regulations 2014 [SI quality and value for money service to its Strategy sets out the quality and 2014/525] (as amended) scheme employers and scheme members. performance standards expected of the This legislation may be accessed at As such the key objectives will be to ensure Pension Fund and its scheme employers, that: and provides details about the monitoring http://www.lgpsregs.org/index.php/regs- of performance levels and the action(s) legislation · the Pension Fund and scheme employers that might be taken where persistent failure Specifically regulation 59 of the Local understand their responsibilities under the occurs. Government Pension Scheme Regulations Scheme and the processes in place to meet those responsibilities; Specifically the Administration Strategy 2013 enables a Local Government Pension will seek to facilitate best practices and Scheme Fund to prepare a document (“the · the Pension Fund and scheme employers efficient customer service in respect of the pension administration strategy”) as one of are compliant with the scheme rules and following:- the tools which can help in delivering a high the Pension Regulator’s code of practice; quality administration service to its scheme · accurate records are maintained and data · Procedures for liaison and communication members and other interested parties. with scheme employers; and documents are submitted in a timely In addition, regulation 70 of the Local and secure manner; · The establishment of performance levels Government Pension Scheme Regulations · lines of communication between the which the administering authority and 2013 allows a fund to recover additional Pension Fund and scheme employers are scheme employers are expected to achieve; costs from a scheme employer where, in maintained and enhanced to maximize its opinion, those costs are directly related · Procedures to ensure compliance with employer engagement;
138 Lancashire County Pension Fund Annual Report 2018/19 139 5
Appendix 5 Lancashire County Pension Fund Pension Administration Strategy Statement September 2018
Pension Fund Administration This details the functions which relate to the whole Pension Fund, rather than individual scheme members’ benefits.
Function/Task Performance Target Function/Task Performance Target Publish and keep under review the Pension Fund’s Administration Within one month of any changes that have been consulted on with Publish, and keep under review, the Pension Fund’s Governance A review will be undertaken by 30 September following the year Strategy. scheme employers. Policy and Compliance Statement. end as part of the Pension Fund’s Annual Report and Accounts, any Publish and keep up to date scheme guidance 30 working days from any revision. subsequent revisions to be published within 30 days of the policy being agreed by the Pensions Committee. Publish and keep up to date all forms required for completion 30 working days from any revision. by scheme members, prospective scheme members or scheme Publish and keep under review the Pension Fund’s Funding To be reviewed at each triennial valuation, following consultation with employers. Strategy Statement. scheme employers and the Pension Fund’s actuary. Revised statement to be published at the same time as the final valuation report is issued. Host a meeting for all scheme employers. Annually for administrators and separately for Finance Directors/Chief executives. Publish the Pension Fund’s Annual Report and Accounts and any By 30 November following the year end or following the issue of the report from the auditor. auditor’s opinion. Organise training sessions for scheme employers. As matter of course for all new employers in the form of induction training. Upon request from scheme employers, or as required, up to Publish, and keep under review, the Pension Fund’s The statement will be published within 30 days of any material change a maximum of 10 days for each employer per annum. Attendance in Communication Strategy Statement. to the policy. excess of 10 days will be provided at a daily rate to be determined on Publish, and keep under review, all discretionary areas where a All discretionary areas will be reviewed where policy or regulatory request. policy decision is required by the administering authority. issues need to be addressed, any subsequent revisions to be published within 30 days of the policy being agreed by the Pensions Committee. Notify scheme employers and scheme members of changes to the Within one month of the change(s) coming into effect. Publish, and keep under review, the Pension Fund’s Investment The statement will be reviewed tri-annually unless policy or regulatory scheme rules. Strategy Statement. issues need to be addressed sooner, any subsequent revisions to be Notify a scheme employer of issues relating to the scheme Within 30 working days of a performance issue becoming apparent. published within 30 days of the policy being agreed by the Pensions employer’s poor performance. Committee. Notify a scheme employer of decisions to recover additional Within 30 working days of a scheme employer’s failure to improve Appoint stage 2 “appointed person” for the purposes of the Within 30 working days following the resignation of the current costs associated with the scheme employer’s poor performance performance, as agreed. pension dispute process and notify all scheme employers of the “appointed person”. (including any interest that may be due). appointment. Issue annual benefit statements to active and deferred members By the following 31 August Process all stage 2 pension dispute applications. Within 2 months of receipt of the application, or such longer time as as at 31 March each year. is required to process the application where further information or clarification is required. Issue formal valuation results (including individual employer No later than 31 March following the valuation date details). Carry out interim valuation exercises on cessation of admission Upon each cessation or occasion where a scheme employer ceases agreements or a scheme employer ceasing participation in the participation of the Pension Fund. Pension Fund. Undertake a risk assessment for all new admitted bodies in the To be completed before the admitted body can be admitted to the Pension Fund Pension Fund.
140 Lancashire County Pension Fund Annual Report 2018/19 141 5
Appendix 5 Lancashire County Pension Fund Pension Administration Strategy Statement September 2018
Scheme Administration Scheme Employer All information must be provided in the Pension Fund This details the functions which relate to scheme member benefits from the Scheme. Responsibilties format and frequency prescribed by Administration the Pension Fund within the prescribed This section outlines the responsibilities of This details the functions which relate to the timescales. Information and guidance is all scheme employers in the Pension Fund whole Pension Fund, rather than individual Function/Task Performance Target provided in the Employers’ Guide and the and the performance standards scheme scheme members’ benefits. Guide and forms are accessible from the employers are expected to meet to enable Calculate transfer values in within 10 working days of receipt of necessary documentation 95% Pension Fund’s website. the Pension Fund to deliver an efficient, Provide information on request in respect of Pension Sharing on Divorce within legislative timescales. (A charge to 100% quality and value for money service. the member will be levied in line with pension sharing on divorce legislation) Implement Pension Sharing Orders within legislative timescales 100% Function/Task Performance Target Provide a statement of deferred benefit entitlement on leaving service within 10 working days of date of leaving or Confirm a nominated representative to receive information from the Pension Within 10 working days of employer joining fund or change to nominated 95% receipt of notification, whichever is later. Fund and to take responsibility for disseminating it within the organisation. representative. Formulate and publish policies in relation to all areas where the employer may Within 30 working days of policy being agreed the employer. Provide annual statement of benefit entitlement to active and deferred members within legislative timescales 100% exercise a discretion within the Scheme (including providing a copy of the policy decision(s) to the Pension Fund). Respond to requests for estimates of benefits within 10 working days following receipt of request 95% Respond to queries from the Fund’s administrator. Within 10 working days from receipt of enquiry. Calculate and pay refunds within 10 days of receipt of notification. 95% Attend induction training provided on admission to the Pension Fund, and Within 30 days of admission, or as agreed for an established scheme other training relating to the administration of the Fund as and when this is employer. Calculation and payment of retirement benefits, deferred benefits and death in service lump sums in accordance offered with LGPS rules, members’ options and statutory limits. The service includes the recalculation and payment 95% of benefits as a result of amended data received by the Pension Service. Within 10 working days of receipt of Pay over employer and employee contributions to the Pension Fund Cleared funds to be received by 19th calendar day of month after required documentation or date of entitlement to benefit; whichever is later. deduction. Contribution payments must be made by direct debit. Where exceptional circumstances are identified then payment can be made by Calculate and pay transfer value out within 10 working days of receipt of necessary documentation 95% BACS with an associated £50 plus vat charge per monthly submission. Provide schedule of payments in the format stipulated by the Fund. By the 19th calendar day of month after deduction. Calls to the Pensions Helpdesk answered 95% Implement changes to employer contribution rates as instructed by the Fund. At date specified on the actuarial advice received by the Fund. Respond to general queries/correspondence within 10 working days of receipt of query/correspondence 95% Provide monthly data as specified by the Fund in the format and frequency Submitted by the 6th of the month following the month it relates stipulated. Make payment of pensions on due date 100% Notify the Pension Fund if contracting out services which will involve a TUPE At the time of deciding to tender so that information can be provided to Produce on line P60s for pensioners within statutory deadlines 100% transfer of staff to another organisation. assist in the decision. Work with the Pension Fund to arrange for an admission agreement and Agreement to be in place by the time the service is contracted out. Implement annual pension increases by payment due date 100% surety arrangements to be put in place when contracting out a service and Implement change in pensioner circumstance by payment due date including the calculation and quoting of assist in ensuring it is complied with. 95% benefits on the death of pensioners and administering the recovery of overpayments Notify the Pension Fund if the employer ceases to admit new scheme As soon as the decision is made, so that the Fund can instruct the actuary members or is considering terminating membership of the Pension Fund. to carry out calculations if applicable. Undertake annual reviews to establish continuing entitlements to pension for all eligible children 100% Provide new/prospective scheme members with relevant Scheme information Within 10 working days of commencement of employment or change in (or refer them to the Fund website). contractual conditions. Amend personal records within 10 working days of receipt of required documentation 95% Make additional fund payments/pensions strain amounts in relation to Within 30 days of receipt of invoice from the Pension Fund. Calculation of additional membership for transfer values within 10 working days of receipt of required early payment of benefits from flexible retirement, redundancy or business 95% documentation efficiency retirement or where a member retires early with employers consent. Make payment of additional costs to the Pension Fund associated with the Within 30 working days of receipt of invoice from the Pension Fund. Action agreed transfer values out within 10 working days of receipt of required documentation 95% poor performance of the scheme employer.
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Appendix 5 Lancashire County Pension Fund Pension Administration Strategy Statement September 2018
Scheme Administration This section details the functions which relate to scheme member benefits from the Scheme.
Function/Task Performance Target Function/Task Performance Target
Use online forms and monthly data collection portal for all relevant scheme Within 15 days of employer being set up to use the relevant systems Notify the Pension Fund when a scheme member is due to retire including Submitted online within 5 working days before retirement date. administration tasks an accurate assessment of actual pensionable pay and final pay (for scheme members in the scheme prior to 1 April 2014) and authorisation of reason for Confirm a nominated representative to act as administrator on the Pension Within 15 days of implementation of the relevant systems. retirement. Fund website for the online submission of forms and monthly data Notify the Pension Fund of the death of a scheme member. Submitted online and as soon as practicable, but within 5 working days. Notify the Pension Fund of each new employee admitted to the pension Via next monthly data collection portal following admission of new scheme and ensure that the employee completes their element of the employee. Appoint an independent registered medical practitioner (IRMP) qualified in Within one month of commencing participation in the scheme or date of process. occupational health medicine, in order to consider all ill health retirement resignation of existing medical adviser applications and agree appointment with the Pension Fund Arrange for the correct deduction of employee contributions from a scheme Immediately on joining the scheme, opting in or change in circumstances. member’s pensionable pay on becoming a scheme member. Carry out an 18 month review of scheme members who retired on grounds of 18 months after date of retirement ill health (Tier 3) Ensure correct employee contribution rate is applied Immediately upon commencing scheme membership and in line with the employer’s policy and as a minimum in each April payroll thereafter. Notify the Pension Fund of outcome of Tier 3 ill health review. Immediately following decision by IRMP Arrange for reassessment of employee contribution rate in line with Review as per policy and notification within 10 working days of change in Appoint person for stage 1 of the pension dispute process and provide full Within 30 working days of joining the Pension Fund or following the employer’s policy and notify the employee of the change in rate. rate. details to the Pension Fund resignation of the current “appointed person” Ensure correct deduction of pension contributions during any period of child Immediately, following receipt of election from scheme member to make Enrol and notify the Pension Fund of a scheme member’s election to move From the next pay period following receipt of the members election form related leave, trade dispute or other forms of leave or absence from duty. the necessary pension contributions. into the 50:50 scheme Commence deduction of additional pension contributions or amend such Month following election to pay contributions or notification received Enrol a “50:50 scheme member” back into the full scheme and notify the In line with an employer’s re-enrolment date for Auto enrolment purposes deductions, as appropriate. from the Pension Fund. Pension Fund. Cease deduction of additional pension contributions. Immediately following receipt of election from scheme member. Comply with auto-enrolment from the prescribed staging date, as required From the employers staging date. under Pensions Regulations and advise the Pension Fund of the date. Arrange for the deduction of AVCs and payment over of contributions to Commence deduction of AVCs in month following the month of election. AVC provider(s). Pay over contributions to the AVC provider(s) by the 19th of the month following the month of election. Refund any employee contributions deducted in error. Month following month of deduction. Cease deduction of employee contributions where a scheme member opts to Month following month of election, or such later date specified by the leave the Scheme. scheme member. Refund employee contributions via payroll where the member has opted out Month following month of election to opt out. within 3 months Provide the Pension Fund with details of all contractual changes to scheme Via the monthly data collection portal members working hours. Notify the Pension Fund of changes in employees’ circumstances Via monthly data collection portal Provide the Pension Fund with details of any breaks in membership (e.g trade Via monthly data collection portal. Any forms not facilitated under the disputes, maternity, paternity) and any APC contracts taken out to cover the portal should be submitted within 10 working days of effective date of break in service. action (e.g “return from absence” notification. Notify the Pension Fund when a scheme member leaves employment Via monthly data collection portal. In addition forms relating to the including an accurate assessment of actual pensionable pay and final pay (for assessment of actual and final pensionable pay should be submitted scheme members in the scheme prior to 1 April 2014). through the employer portal immediately following the availability of accurate pay details.
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Appendix 5 Lancashire County Pension Fund Pension Administration Strategy Statement September 2018
Monitoring Performance Scheme incurred as a result of the poor level The circumstances where such additional performance and notice that charges will be And Compliance of performance of that scheme employer. costs will be recovered from the scheme levied in accordance with the charging scale Where a fund wishes to recover any such employer are: set out in this document. An invoice will Ensuring compliance with the Scheme additional costs they must give written then be issued to the scheme employer. regulations and this Administration Strategy · failure to provide relevant information to the notice stating: is the responsibility of the Pension Fund and Fund, scheme member or other interested For other instances of poor performance, scheme employers. This section describes · The reasons in their opinion that the party in accordance with specified the process for engagement with scheme the ways in which performance and scheme employer’s poor performance performance targets in this Administration employers will be: compliance will be monitored. contributed to the additional cost Strategy (either as a result of timeliness of 1. Write to the scheme employer, setting out delivery or quality of information) Audit · The amount of the additional cost incurred area(s) of poor performance and offer The Fund is subject to an annual external · The basis on how the additional cost was · failure to pass relevant information to the training. audit of its financial accounts. In addition calculated scheme member or potential members, 2. If no improvement is seen within either due to poor quality of information the Fund is subject to internal audits of · The provisions of the Administration one month, or following training no its processes and internal controls. Both or not meeting the agreed timescales improvement is seen, or no response Strategy relevant to the decision to give outlined in the performance targets in this the Administering Authority and scheme notice. is received to the initial letter, the employers are expected to comply with Administration Strategy scheme employer will be contacted by requests for information from internal and Circumstances where costs might be · failure to deduct and pay over correct representatives of the Pension Fund to external audit in a timely manner. recovered employee and employer contributions discuss the area(s) of poor performance It is the policy of the Pension Fund to Performance monitoring to the Pension Fund within the stated and to agree an action plan to resolve recover additional costs incurred in the timescales them. In cases where the scheme The Pension Fund monitors performance administration of the Scheme as a direct employer has been admitted to the fund against agreed Service Levels. · instances where the performance of the result of the poor performance of any scheme employer results in fines being via an Admission Agreement, then where Administration performance and the scheme employer. appropriate, the originating employer will performance of scheme employers against levied against the Fund by the Pension In the case of scheme employers that have Regulator, Pensions Ombudsman or other be informed and expected to work with the standards set out in this document are the Fund to resolve the issues. incorporated into appropriate reporting been admitted to the Scheme as the result regulatory body. schedules. of an “outsourced” contract (formerly Approach to be taken by the Pension 3. If no improvement is seen within one known as Transferee Admission Bodies Fund month or a scheme employer is unwilling Annual report on the strategy (TAB)), the originating employer will retain to attend a meeting to resolve the issue, The Scheme regulations require the Pension overall responsibility for ensuring that The Fund will seek, at the earliest the Fund will issue a formal written Fund to undertake a formal review of the scheme employer complies with the opportunity, to work closely with scheme notice, setting out the area(s) of poor performance against the Administration requirements of the Pension Fund. This employers in identifying any areas of poor performance that have been identified, Strategy on an annual basis. Such report includes the payment of charges levied performance, provide the necessary training the steps taken to resolve those area(s) to be incorporated within the Fund Annual against the TAB. and put in place appropriate processes to and notice that the additional costs will Report and Accounts. improve the level of service delivery in the now be reclaimed. Scheme employers that have outsourced future. Policy On Charging their payroll will be responsible for the third 4. An invoice will then be issued to the Employers For Poor party providers’ performance in relation The deadline for the payment of scheme employer clearly setting out contributions and submissions of data are Performance to the tasks set out in this Administration the calculations of any loss resulting to Strategy. This requires that scheme outlined in this Administration Strategy. the Pension Fund, or additional cost, The Scheme regulations provide pension employers will be responsible for payment For every instance of late payment of taking account of time and resources funds with the ability to recover from a of any charges levied for underperformance contributions or late or non-submission in resolving the specific area(s) of poor scheme employer any additional costs by that third party provider. of a monthly data, scheme employers will performance, in accordance with the associated with the administration of the receive written notice of the area(s) of poor charging scale set out in this document.
146 Lancashire County Pension Fund Annual Report 2018/19 147 5
Appendix 5 Lancashire County Pension Fund Pension Administration Strategy Statement September 2018
Charging scales for Continuous Improvement Consultation And Review administration The Fund’s objective in relation to Process The table below sets out the charges administration is to deliver an efficient, In preparing this Administration Strategy which the Fund will levy on a scheme quality and value for money service to its the Fund must consult with all scheme employer whose performance falls short scheme employers and scheme members. employers with active contributors in of the standards set out in this document. This can only be achieved through the Pension Fund. The strategy will be This reflects the additional administration continuously reviewing and improving reviewed where there are significant changes involved in securing payment of sums due the service. to the Scheme regulations or Pension to the Pension Fund and submission of Fund policies. Scheme employers will be required data and information. consulted before any changes are made to this document
Item Charge Failure to remit monthly payment of employee and employer contributions by the 19th of the Interest in line with the scheme regulations* month following deduction. Late or non-provision of monthly schedule of contributions paid, or the poor quality of £50 per occasion information submitted which cannot be reconciled. The deadline for receipt of an accurate schedule would be 12th of the month following deduction of contributions (or previous working day if the 12th were to fall on a weekend). Underpayment of employee or employer contributions which were due by the 19th of the Interest in line with the scheme regulations* month following deduction. Late or non-provision of monthly data collection files, or the poor quality of information £250 plus £100 for every month the submitted which cannot be reconciled. The deadline for receipt of an accurate schedule information is late would be 6th of the month following deduction of contributions. Where this cannot be reconciled within the month and/or relates to an employer who is persistently late then the charges identified will be levied. Late or non-provision of starter information Via next monthly data collection portal following £50 for every month the information is late admission of new employee. or not received via the next monthly data collection portal following admission of new employee. Late or non-provision of leaver information In respect of leavers £50 for every case where the information is more than 1 month late from date of leaving or not received via the next monthly data collection portal. In respect of retirements information received later than within 5 working days before retirement date would be deemed late. Fines or additional costs incurred by the Pension Fund in relation to a specific scheme Full cost of fines or additional charges employers’ poor performance * Interest will be charged in accordance with regulation 44 of the LGPS Administration regulations, which states interest should be charged at Bank of England Base Rate plus one percent.
148 Lancashire County Pension Fund Annual Report 2018/19 149 6
Appendix 6
Funding Strategy Statement Lancashire County Pension Fund - March 2017
Executive Summary pensions already in payment to continue to Actuary’s Department (GAD) must, the recovery period). Full details are set out 2.2% per annum and for determining the Ensuring that the Lancashire County Pension be paid, and to reflect the commitments that following an actuarial valuation, report on in this FSS. future service (“Primary”) contribution rates Fund (the “Fund”) has sufficient assets will arise from members’ accrued pension whether the rate of employer contributions The target recovery period for the Fund as is 2.75% per annum. to meet its pension liabilities in the long rights. to the Fund is set at an appropriate level to a whole is 16 years at this valuation which Where warranted by an employer’s term is the fiduciary responsibility of the The funding strategy set out in this ensure the “solvency” of the pension fund is 3 years shorter than the average recovery circumstances, the Administering Authority Administering Authority (Lancashire County document has been developed alongside and “long term cost efficiency” of the Local period from the previous valuation. Subject retains the discretion to apply a discount Council). The Funding Strategy adopted by the Fund’s investment strategy on an Government Pension Scheme (the “LGPS”) to affordability and other considerations rate based on a lower risk investment the Lancashire County Pension Fund will integrated basis taking into account the so far as relating to the Fund. individual employer recovery periods would strategy for that employer to protect therefore be critical in achieving this. overall financial and demographic risks Deficit Recovery Plan And also be expected to reduce by 3 years at the Fund as a whole. Such cases will be Contributions The purpose of this Funding Strategy inherent in the Fund. The funding strategy this valuation. determined by the Head of the Fund and Statement (“FSS”) is to set out a clear and includes appropriate margins to allow for the As the solvency level of the Fund is 90% at Where there is an increase in contributions reported to the Committee. Employers may transparent funding strategy that will identify possibility of events turning out worse than the valuation date i.e. the assets of the Fund required at this valuation the employer will also choose to fund using a discount rate in how each Fund employer’s pension liabilities expected. Individual employer results will are less than the liabilities, a deficit recovery be able to step-up their contributions over line with the Fund’s termination policy (see are to be met going forward. also have regard to their covenant strength plan needs to be implemented such that a period to be decided by the Administering below) if they so choose. and the investment strategy applied to the additional contributions are paid into the Authority. The demographic assumptions are based on The details contained in this Funding asset shares of those employers. Fund to meet the shortfall. Strategy Statement will have a financial In exceptional circumstances the Fund the Fund Actuary’s bespoke analysis for the Solvency And Long Term Cost Deficit contributions paid to the Fund by Fund, also taking into account the experience and operational impact on all participating Efficiency may depart from the above principles employers in the Lancashire County Pension each employer will normally be expressed for an employer or a particular group of of the wider LGPS where relevant. Fund. Each employer’s contributions are set at as £s amounts (flat or increasing year on employers. Any such exceptions would be Employer Asset Shares such a level to achieve full solvency in a year) and it is the Fund’s objective that any determined by the Head of the Fund and The Fund is a multi-employer pension Fund It is imperative therefore that each existing reasonable timeframe. Solvency is defined funding deficit is eliminated as quickly as reported to the Committee. that is not formally unitised and so individual or potential employer is aware of the details as a level where the Fund’s liabilities i.e. the participating employers can reasonably Actuarial Assumptions employer asset shares are calculated at contained in this statement. benefit payments can be reasonably met as afford given other competing cost pressures. each actuarial valuation. This means it is Given this, and in accordance with governing they arise. This may result in some flexibility in recovery The actuarial assumptions used for assessing the funding position of the Fund necessary to make some approximations legislation, all interested parties connected Employer contributions are also set in periods by employer which would be at and the individual employers, the “Primary” in the timing of cashflows and allocation with the Lancashire County Pension Fund order to achieve long term cost efficiency. the sole discretion of the Administering contribution rate, and any contribution of investment returns when deriving each have been consulted and given opportunity Long term cost-efficiency implies that Authority. The recovery periods will be set variations due to underlying surpluses or employer’s asset share. to comment prior to this Funding Strategy contributions must not be set at a level that by the Fund, although employers will be deficits (i.e. the “Secondary” rate) are set At each review, cashflows into and out of Statement being finalised and adopted. is likely to give rise to additional costs in free to select any shorter deficit recovery out in an Appendix to this FSS. the Fund relating to each employer, any This statement takes into consideration all the future. For example, deferring costs to period if they wish. Employers may, in movement of members between employers comments and feedback received. the future would be likely to result in those certain circumstances at the discretion of the The discount rate in excess of CPI inflation within the Fund, along with investment The Fund’s Objective costs being greater overall than if they were Administering Authority, also elect to make (the “real discount rate”) has been derived return earned on the asset share, are provided for at the appropriate time. Equally, prepayments of contributions which could based on the expected return on the Fund’s The Administering Authority’s long term allowed for when calculating asset shares at the FSS must have regard to the desirability result in a cash saving over the valuation assets based on the long term strategy set objective is for the Fund to achieve a 100% each valuation. In addition the asset share of maintaining as nearly constant a primary certificate period. out in its Investment Strategy Statement solvency level over a reasonable time period maybe restated for changes in data or other and then maintain sufficient assets in order rate of contribution as possible. The objective is to recover any deficit (ISS). When assessing the appropriate prudent discount rate, consideration has policies. for it to pay all benefits arising as they fall When formulating the funding strategy, over a reasonable timeframe, and this been given to the level of expected asset Other adjustments are also made on due. This objective will be considered on an the Administering Authority has taken will be periodically reviewed. Subject to returns in excess of CPI inflation (i.e. the rate account of the funding positions of orphan employer specific level where appropriate. into account these key objectives and affordability considerations a key principle at which the benefits in the LGPS generally bodies which fall to be met by all other also considered the implications of the will be to maintain the total contributions The general principle adopted by the Fund is increase each year). It is proposed at this active employers in the Fund. requirements under Section 13(4)(c) of at the expected monetary levels from that the assumptions used, taken as a whole, valuation the real return over CPI inflation the Public Service Pensions Act 2013. As the preceding valuation (including any will be chosen sufficiently prudently for for determining the past service liabilities is part of these requirements the Government indexation in the £ deficit contributions over
150 Lancashire County Pension Fund Annual Report 2018/19 151 6
Appendix 6
Funding Strategy Statement Lancashire County Pension Fund - March 2017
Fund Policies − Admission bodies - usually arising as a 1. Introduction The Fund is a defined benefit arrangement These will be the calculated weighted In addition to the information/approaches result of an outsourcing or a transfer to an The Local Government Pension Scheme with principally final salary related benefits average based on the whole fund payroll required by overarching guidance and entity that provides some form of public Regulations 2013 (as amended) (“the 2013 from contributing members up to 1 April in respect of percentage rates and the total Regulation, this statement also summarises service and their funding primarily derives Regulations”) and the Local Government 2014 and Career Averaged Revalued amount in respect of cash adjustments. the Fund’s practice and policies in a number from local or central government. Pension Scheme (Transitional Provisions, Earnings (“CARE”) benefits earned of key areas: Certain employers may be required to Savings and Amendment) Regulations thereafter. There is also a “50:50 Scheme Option”, where members can elect to 2. Purpose Of Fss In Policy 1. Covenant assessment and monitoring provide a guarantee or alternative security 2014 (“the 2014 Transitional Regulations”) before entry will be allowed, in accordance (collectively; “the Regulations”) provide accrue 50% of the full Fund benefits in Terms An employer’s financial covenant underpins with the Regulations and Fund policies. the statutory framework from which the relation to the member only and pay 50% of Funding is the making of advance provision its legal obligation and crucially the ability Administering Authority is required to the normal member contribution. to meet the cost of accruing benefit to meet its financial responsibilities to 3. Termination policy for employers prepare a Funding Strategy Statement Employer Contributions promises. Decisions taken regarding the Fund now and in the future. The exiting the Fund (FSS). The key requirements for preparing The required levels of employee the approach to funding will therefore strength of covenant to the Fund effectively When an employer ceases to participate the FSS can be summarised as follows: contributions are specified in the determine the rate or pace at which this underwrites the risks to which the Fund is within the Fund, it becomes an exiting Regulations. Employer contributions advance provision is made. Although exposed. These risks include underfunding, employer under the Regulations. The • After consultation with all relevant are determined in accordance with the the Regulations specify the fundamental longevity, investment and market forces. Fund is then required to obtain an actuarial interested parties involved with the Regulations (which require that an actuarial principles on which funding contributions valuation of that employer’s liabilities Lancashire County Pension Fund (the The strength of employer covenant can valuation is completed every three years should be assessed, implementation of in respect of the benefits of the exiting “Fund”), the Administering Authority will be subject to substantial variation over by the actuary, including a rates and the funding strategy is the responsibility of employer’s current and former employees, prepare and publish their funding strategy; relatively short periods of time and, as such, adjustments certificate specifying the the Administering Authority, acting on the along with a termination contribution • In preparing the FSS, the Administering regular monitoring and assessment is vital to “primary” and “secondary” rate of the professional advice provided by the actuary. the overall risk management and governance certificate. Authority must have regard to: employer’s contribution). The Administering Authority’s long term of the Fund. The employers’ covenants will Where there is no guarantor who would − the guidance issued by CIPFA for this Primary Rate objective is for the Fund to achieve a 100% be assessed and monitored objectively in a subsume the liabilities of the exiting purpose; and solvency level over a reasonable time period proportionate manner, and an employer’s The “Primary rate” for an employer is the employer, and the employer was admitted − the Investment Strategy Statement and then maintain sufficient assets in order ability to meet their obligations in the short contribution rate required to meet the cost into the Fund after 19 November 2009, (ISS) for the Fund published under for it to pay all benefits arising as they fall and long term will be considered when of the future accrual of benefits, ignoring any the Fund’s policy is that a discount rate Regulation 7 of the Local Government due. determining its funding strategy. linked to government bond yields is used past service surplus or deficit, but allowing Pension Scheme (Management and for any employer-specific circumstances, The purpose of this Funding Strategy After the valuation, the Fund will continue for assessing liabilities on termination. Any Investment of Funds) Regulations 2016 such as its membership profile, the funding Statement is therefore: to monitor employers’ covenants in exit payments due should be within 30 (as amended); strategy adopted for that employer, conjunction with their funding positions days, although instalment plans may be • to establish a clear and transparent fund- • The FSS must be revised and published the actuarial method used and/or the over the inter-valuation period. This will considered by the Administering Authority specific strategy which will identify how whenever there is a material change in employer’s covenant. enable the Fund to anticipate and pre-empt on a case by case basis. The Administering employers’ pension liabilities are best met either the policy set out in the FSS or the any material issues arising and thus adopt a Authority also reserves the right to modify The Primary rate for the whole fund is going forward by taking a prudent longer- ISS. proactive approach in partnership with the this approach on a case by case basis if the weighted average (by payroll) of the term view of funding those liabilities; Benefits employer. circumstances warrant it. individual employers’ Primary rates. • to establish contributions at a level to 2. Admitting employers to the Fund 4. Insurance arrangements The benefits provided by the Fund are Secondary Rate “secure the solvency” of the pension fund For certain employers, the Fund will insure specified in the governing legislation The “Secondary rate” is an adjustment to and the “long term cost efficiency”, Various types of employers are permitted to contained in the Regulations referred to ill health retirement costs via an internal the Primary rate to arrive at the total rate of • to have regard to the desirability of join the LGPS under certain circumstances, above. Benefits payable under the Fund captive insurance arrangement which pools contribution each employer is required to maintaining as nearly constant a primary rate and the conditions upon which their entry are guaranteed by statute and thereby the to the Fund is based and the approach taken these risks for eligible employers. The pay. The Secondary rate may be expressed of contribution as possible. captive arrangement will be operated as per pensions promise is secure for members. as a percentage adjustment to the Primary is set out in an Appendix to this statement. The FSS addresses the issue of managing The intention is for this strategy to be Examples of new employers include: the objectives set out in Appendix C. rate, and/or a cash adjustment in each of both cohesive and comprehensive for the the need to fund those benefits over the the three years beginning 1 April in the year − Fund Employers long term, whilst at the same time facilitating Fund as a whole, recognising that there following the actuarial valuation. will be conflicting objectives which need − Designated bodies - those that are scrutiny and accountability through Secondary rates for the whole fund in each to be balanced and reconciled. Whilst the permitted to join if they pass a resolution improved transparency and disclosure. of the three years shall also be disclosed. position of individual employers must be
152 Lancashire County Pension Fund Annual Report 2018/19 153 6
Appendix 6
Funding Strategy Statement Lancashire County Pension Fund - March 2017
reflected in the statement, it must remain the Fund Actuary, and details of their roles Regulations and the Pensions Regulator’s security against the financial effect on the costs being greater overall than if they were As part of each valuation separate employer a single strategy for the Administering are set out below. Other parties required relevant Code of Practice. Fund of employer default provided for at the appropriate time. contribution rates are assessed by the Fund Authority to implement and maintain. to play their part in the fund management The Individual Employer should: • assist the Administering Authority in When formulating the funding strategy Actuary for each participating employer 3. Aims And Purpose Of The process are bankers, custodians, investment assessing whether employer contributions the Administering Authority has taken or group of employers. These rates are managers, auditors and legal, investment • deduct contributions from employees’ pay assessed taking into account the experience Fund correctly after determining the appropriate need to be revised between valuations as into account these key objectives and and governance advisors, along with the required by the Regulations also considered the implications of the and circumstances of each employer, The aims of the fund are to: Local Pensions Board created under the employee contribution rate (in accordance following a principle of no cross-subsidy with the Regulations) • advise on funding strategy, the preparation requirements under Section 13(4)(c) of • manage employers’ liabilities effectively Public Service Pensions Act 2013. between the distinct employers and of the FSS and the inter-relationship the Public Service Pensions Act 2013. As and ensure that sufficient resources are Key Parties To The Fss • pay all contributions, including their own part of these requirements the Government employer groups in the Fund. as determined by the actuary, promptly by between the FSS and the ISS, and available to meet all liabilities as they fall The Administering Authority should: Actuary’s Department (GAD) must, The Administering Authority, following due the due date • ensure the Administering Authority is following an actuarial valuation, report on consultation with the participating • operate the pension fund aware of any professional guidance or other • enable employer contribution rates to be • develop a policy on certain discretions and whether the rate of employer contributions employers, has adopted the following professional requirements which may be kept at a reasonable and affordable cost • collect employer and employee exercise those discretions as permitted to the Fund is set at an appropriate level to objectives for setting the individual employer of relevance to the Fund Actuary’s role in to the taxpayers, scheduled, resolution contributions, investment income and within the regulatory framework ensure the “solvency” of the pension fund contribution rates arising from the 2016 other amounts due to the pension fund as advising the Fund. and admitted bodies, while achieving and • make additional contributions in and “long term cost efficiency” of the LGPS actuarial valuation: stipulated in the Regulations maintaining fund solvency and long term accordance with agreed arrangements in 5. Solvency Funding Target so far as relating to the Fund. • The Fund does not believe it appropriate cost efficiency, which should be assessed in • pay from the pension fund the relevant respect of, for example, augmentation of Securing the “solvency” and “long term cost Determination of the solvency for reductions in total contributions to light of the profile of the Fund now and in entitlements as stipulated in the Fund benefits, early retirement strain, and efficiency” is a regulatory requirement. To funding target and deficit recovery apply compared to the existing funding the future due to sector changes Regulations plan • have regard to the Pensions Regulator’s meet these requirements the Administering plan (allowing for indexation of deficit • maximise the returns from investments • invest surplus monies in accordance the focus on data quality and comply with Authority’s long term funding objective is The principal method and assumptions to contributions where applicable) where within reasonable risk parameters taking Regulations any requirement set by the Administering for the Fund to achieve and then maintain be used in the calculation of the funding deficits remain unless there is compelling into account the above aims. sufficient assets to cover 100% of projected target are set out in Appendix A. The reason to do so. • ensure that cash is available to meet Authority in this context, and accrued liabilities (the “funding target”) Employer Deficit Recovery Plans are set out The purpose of the fund is to: liabilities as and when they fall due • notify the Administering Authority • Where warranted by an employer’s assessed on an ongoing past service basis in Appendix B. promptly of any changes to membership circumstances, the Administering Authority • receive monies in respect of contributions, • take measures as set out in the Regulations including allowance for projected final pay transfer values and investment income, and which may affect future funding. Underlying these assumptions are the retains the discretion to apply a discount to safeguard the fund against the where appropriate. In the long term, an following two tenets: rate based on a lower risk investment • pay out monies in respect of Fund consequences of employer default employer’s total contribution rate would The Fund Actuary should: • that the Fund is expected to continue for strategy for that employer to protect benefits, transfer values, costs, charges • manage the valuation process in ultimately revert to its Primary rate of • prepare valuations including the setting the foreseeable future; and the Fund as a whole. Such cases will be and expenses as defined in the 2013 consultation with the Fund’s actuary contribution. determined by the Head of Fund and Regulations, the 2014 Transitional of employers’ contribution rates at a level • favourable investment performance can • prepare and maintain a FSS and an ISS, Solvency and Long Term Efficiency reported to the Committee. Employers Regulations and the Local Government to ensure fund solvency after agreeing play a valuable role in achieving adequate both after proper consultation with may also choose to fund using a discount Pension Scheme (Management and assumptions with the Administering Each employer’s contributions are set at funding over the longer term. interested parties, and Authority and having regard to their FSS such a level to achieve full solvency in a rate in line with the Fund’s termination Investment of Funds) Regulations 2016. This allows the Fund to take a longer term policy if they so choose. • monitor all aspects of the Fund’s and the Regulations reasonable timeframe. Solvency is defined 4. Responsibilities Of The as a level where the Fund’s liabilities i.e. view when assessing the contribution • Subject to consideration of affordability, performance and funding, amending the • prepare advice and calculations in requirements for certain employers. Key Parties FSS/ISS as necessary connection with bulk transfers and benefit payments can be reasonably met as as a general rule the deficit recovery period they arise. In considering this the Administering will reduce by at least 3 years for employers The efficient and effective management • effectively manage any potential conflicts individual benefit-related matters such as of the Fund can only be achieved if all pension strain costs, ill health retirement Employer contributions are also set in Authority, based on the advice of the at this valuation when compared to the of interest arising from its dual role as both Actuary, will consider if this results in a preceding valuation. This is to target full parties exercise their statutory duties fund administrator and a Fund employer, costs etc order to achieve long term cost efficiency. and responsibilities conscientiously and Long term cost-efficiency implies that reasonable likelihood that the funding plan solvency over a similar (or shorter) time and • provide advice and valuations on the will be successful potentially taking into horizon. Employers will have the freedom diligently. The key parties for the purposes termination of admission agreements contributions must not be set at a level that of the FSS are the Administering Authority • establish, support and monitor a Local is likely to give rise to additional costs in account any changes in funding after the to adopt a recovery plan on the basis of (and, in particular the Pension Fund Pension Board (LPB) as required by the • provide advice to the Administering the future. For example, deferring costs to valuation date up to the finalisation of the a shorter period if they so wish. Subject Committee), the individual employers and Public Service Pensions Act 2013, the Authority on bonds and other forms of the future would be likely to result in those valuation by 31 March 2017 at the latest. to affordability considerations and other
154 Lancashire County Pension Fund Annual Report 2018/19 155 6
Appendix 6
Funding Strategy Statement Lancashire County Pension Fund - March 2017
factors, a bespoke period may be applied charged to provide continued protection a whole. Any employer affected will be · For those employers who don’t In assessing the value of the Fund’s liabilities this valuation it would not be appropriate in respect of particular employers where against the risks of excessive ill-health notified separately. participate in the ill-health captive, the in the valuation, allowance has been made to make any allowance for growth assets the Administering Authority considers this retirement costs emerging. Further details Funding for non-ill health early “primary rate” payable over 2017/20 for growth asset out-performance as out-performance or any adjustment to to be warranted (see Deficit Recovery Plan are provided in Appendix C of these retirement costs may include an allowance for ill-health described below, taking into account the market implied inflation assumption due in Appendix B). These principles have adjustments. retirement costs (alongside those for investment strategy adopted by the Fund, as to supply/demand distortions in the bond Employers are required to meet all costs resulted in a target recovery period of 16 voluntary early retirements) depending set out in the ISS. markets. This would result in real return • In exceptional circumstances the Fund of early retirement strain by immediate years normally being adopted across Fund on the employer’s profile. Where ill- versus CPI inflation of nil per annum at the may depart from the above principles capital payments into the Fund, or in certain It is not possible to construct a portfolio employers. health retirement strain costs exceed valuation date. On this basis of assessment, for an employer or a particular group of circumstances by agreement with the Fund, of investments which produces a stream an employer’s allowance over the inter- the assessed value of the Fund’s liabilities at • Individual employer contributions will be employers. Any such exceptions would through instalments over a period to be of income exactly matching the expected valuation period (or should an employer the valuation would have been significantly expressed and certified as two separate be determined by the Head of the Fund determined by the Administering Authority. liability outgo. However, it is possible to elements: and reported to the Committee. As a not have an allowance within their construct a portfolio which aims to match higher, resulting in a funding level of 59%. Funding for ill health retirement “primary rate”), the excess strain costs · the Primary rate: a percentage of particular example, in the event that it costs the liabilities and represents the minimum Departure from a minimum risk investment appeared that an employer was likely to will be included in the employer’s deficit risk investment position. Such a portfolio strategy, in particular to include growth pensionable payroll in respect of the cost Should a member retire on ill health grounds, end its participation in the Fund without its (and subsequent deficit contributions) at would consist mainly of a mixture of long- assets such as equities, gives a better of the future accrual of benefits this will normally result in a funding strain liabilities being passed on to a successor the 2019 valuation. term index-linked and fixed interest gilts. prospect that the assets will, over time, for that employer (i.e. increased liability). · the Secondary rate: a schedule of employer, and without the employer Investment of the Fund’s assets in line with deliver returns in excess of CPI inflation The size of any funding strain will depend 7. Link To Investment Policy percentages of pensionable payroll providing sufficient security against its the minimum risk portfolio would seek to and reduce the contribution requirements. on how the cost of that ill health retirement And The Investment Strategy or lump sum monetary amounts over closure position, then the Fund might minimise fluctuations in the Fund’s ongoing The target solvency position of having compares with the expected cost built in the Statement (Iss) 2017/20 in respect of an employer’s decide to set a funding plan such that the funding level between successive actuarial sufficient assets to meet the Fund’s pension actuarial assumptions for that employer. The surplus or deficit employer’s closure position were expected The results of the 2016 valuation show the valuations. obligations might in practice therefore actual cost will also depend on the level of For any employer, the total contributions to be met by the time of its exit from the liabilities to be 90% covered by the current be achieved by a range of combinations any benefit enhancements awarded (which If, at the valuation date, the Fund had been they are actually required to pay in any one Fund. assets, with the funding deficit of 10% being of funding plan, investment strategy and depend on the circumstances of the ill health invested in this portfolio, then in carrying out year is the sum of the Primary and Secondary covered by future deficit contributions. investment performance. • On the cessation of an employer’s retirement) and also how early the benefits rates (subject to an overall minimum of participation in the Fund, in accordance are brought into payment. The treatment of zero). Both elements are subject to further with the Regulations, the Fund Actuary any ill-health retirement strain cost emerging review from April 2020 based on the results will be asked to make a termination will vary depending on the type of employer: The current strategy is: of the 2019 actuarial valuation. assessment. Any deficit in the Fund in · For those employers who participate 2.0% • Where increases in employer contributions respect of the employer will be due to the in the ill-health captive, any ill-health The investment strategy and return Equity holdings are required from 1 April 2017, following Fund as a termination contribution, unless 2.0% 3.5% retirement strain cost emerging will be expectations set out above equate to an completion of the 2016 actuarial valuation, it is agreed by the Administering Authority met by a contribution from the captive overall best estimate average expected Alternative credit if the Administering Authority agrees then and the other parties involved that the 6.0% fund as part of the subsequent actuarial return of 3.55% per annum in excess of the increase from the rates of contribution assets and liabilities relating to the employer valuation (or termination assessment CPI inflation as at 31 March 2016. For Property holdings payable in the year 2016/17 may be will transfer within the Fund to another 8.0% if sooner). No additional contributions the purposes of setting funding strategy implemented in steps, over a period agreed participating employer. The termination will be due immediately from the however, the Administering Authority Infrastructure by the Administering Authority. policy is set out in a separate document. employer although an adjustment to the believes that it is appropriate to take a 11.0% • For those employers who are to be included • In all cases the Administering Authority margin for prudence on these return Private equity “premium” payable may emerge following 42.3% in the ill-health captive arrangement, the reserves the right to apply a different expectations. the subsequent actuarial valuation, Corporate bonds contributions payable over the period approach at its sole discretion, taking depending on the overall experience of 1 April 2017 to 31 March 2020 will be into account the risk associated with an the captive fund. Index linked gifts adjusted accordingly to reflect the premium employer in proportion to the Fund as 25.2% Cash
156 Lancashire County Pension Fund Annual Report 2018/19 157 6
Appendix 6
Funding Strategy Statement Lancashire County Pension Fund - March 2017
8. Identification of risks and constant review and the performance of the potential new entrants to Fund, Method 9. Monitoring and review counter-measures investment managers is regularly monitored. • Changes to national pension requirements The actuarial method to be used in the The Administering Authority has taken The funding of defined benefits is by its Demographic and/or HMRC Rules calculation of the solvency funding target is advice from the actuary in preparing this the Projected Unit method, under which the nature uncertain. Funding of the Fund is The demographic risks are as follows:- Membership of the LGPS is open to all local Statement, and has consulted with the salary increases assumed for each member based on both financial and demographic government staff and should be encouraged employers participating in the Fund. • Longevity horizon continues to expand are projected until that member is assumed assumptions. These assumptions are as a valuable part of the contract of A full review of this Statement will occur • Deteriorating pattern of early retirements to leave active service by death, retirement specified in the actuarial valuation report. employment. However, increasing no less frequently than every three years, to (including those granted on the grounds of or withdrawal from service. This method When actual experience is not in line with membership does result in higher employer coincide with completion of a full actuarial ill health) implicitly allows for new entrants to the Fund the assumptions adopted a surplus or monetary costs. valuation. Any review will take account of on the basis that the overall age profile of the shortfall will emerge at the next actuarial • Unanticipated acceleration of the maturing the current economic conditions and will Governance active membership will remain stable. As a assessment and will require a subsequent of the Fund resulting in materially negative also reflect any legislative changes. contribution adjustment to bring the cashflows and shortening of liability The Fund has done as much as it believes it result, for those employers which are closed The Administering Authority will monitor funding back into line with the target. durations reasonably can to enable employing bodies to new entrants, an alternative method is and Fund members (via their trades unions) adopted, which makes advance allowance the progress of the funding strategy between The Administering Authority has been Increasing longevity is something which to make their views known to the Fund for the anticipated future ageing and decline full actuarial valuations. If considered advised by the Fund Actuary that government policies, both national and and to participate in the decision-making of the current closed membership group appropriate, the funding strategy will be the greatest risk to the funding level local, are designed to promote. It does, process. potentially over the period of the rates and reviewed (other than as part of the triennial is the investment risk inherent in the however, result in a greater liability for adjustments certificate. valuation process), for example, if there: predominantly equity based strategy, so pension funds. Governance risks are as follows:- that actual asset out-performance between Financial Assumptions – Solvency • has been a significant change in market Apart from the regulatory procedures in • The quality of membership data Funding Target successive valuations could diverge conditions, and/or deviation in the progress place to ensure that ill-health retirements deteriorates materially due to breakdown significantly from that assumed in the long Investment return (discount rate) of the funding strategy are properly controlled, employing bodies in processes for updating the information term. • have been significant changes to the Fund should be doing everything in their power resulting in liabilities being under or The discount rate has been derived based membership, or LGPS benefits Financial to minimise the number of ill-health overstated on the expected return on the Fund assets The financial risks are as follows:- retirements. Early retirements for reasons of • Administering Authority unaware base on the long term strategy set out in • have been changes to the circumstances redundancy and efficiency do not affect the of structural changes in employer’s the Investment Strategy Statement (ISS). It of any of the employing authorities to such • Investment markets fail to perform in line solvency of the Fund because they are the membership (e.g. large fall in employee includes appropriate margins for prudence. an extent that they impact on or warrant a with expectations subject of a direct charge. numbers, large number of retirements) When assessing the appropriate discount change in the funding strategy • Market outlook moves at variance with rate consideration has been given to the With regards to increasing maturity (e.g. with the result that contribution rates are • have been any significant special assumptions set at too low a level returns in excess of CPI inflation (as derived contributions paid into the Fund. due to further cuts in workforce and/or below). The discount rate at the valuation • Investment Fund Managers fail to achieve restrictions on new employees accessing the • Administering Authority not advised of When monitoring the funding strategy, if the performance targets over the longer term has been derived based on an assumed Fund), the Administering Authority regularly an employer closing to new entrants, return of 2.2% per annum above CPI Administering Authority considers that any • Asset re-allocations in volatile markets may monitors the position in terms of cashflow something which would normally require inflation i.e. a real return of 2.2% per annum, action is required, the relevant employing lock in past losses requirements and considers the impact on an increase in contribution rates equating to a total discount rate of 4.4% authorities will be contacted. In the case the investment strategy. • Pay and price inflation significantly more or • An employer ceasing to exist with per annum. This real return will be reviewed of admitted bodies, there is statutory less than anticipated Insurance of certain benefits insufficient funding or adequacy of a bond from time to time based on the investment provision for rates to be amended between valuations but it is unlikely that this power • Future under performance arising as a The contributions for any employer may • Changes in the Committee membership. strategy, market outlook and the Fund’s be varied as agreed by the Actuary and overall risk metrics. will be invoked other than in exceptional result of participating in the larger asset For these risks to be minimised much Administering Authority to reflect any circumstances. pooling vehicle. depends on information being supplied For any employers who are funding on a changes in contribution requirements as a to the Administering Authority by the government bond based the discount rate Any increase in employer contribution result of any benefit costs being insured with employing bodies. Arrangements are strictly used will be linked directly to the yields rates (as a result of these risks), may in a third party or internally within the Fund. turn impact on the service delivery of that controlled and monitored, but in most cases available of government bond assets of an employer and their financial position. Regulatory the employer, rather than the Fund as a appropriate duration. whole, bears the risk. In practice the extent to which these The key regulatory risks are as follows:- risks can be reduced is limited. However, • Changes to Regulations, e.g. changes the Fund’s asset allocation is kept under to the benefits package, retirement age,
158 Lancashire County Pension Fund Annual Report 2018/19 159 6
Appendix 6
Appendix A - Actuarial Method and Assumptions
Inflation (Consumer Prices Index) Demographic assumptions last valuation. In addition, no allowance will to use a slightly higher expected return from The inflation assumption will be taken to Mortality/Life Expectancy be made for the future take-up of the 50:50 the investment strategy. In addition the option (an allowance of 10% of current and future liabilities for which these contributions be the investment market’s expectation for The mortality in retirement assumptions future members (by payroll) for certain will be paid have a longer average duration RPI inflation as indicated by the difference will be based on the most up-to-date employers was made at the last valuation). than the past service liabilities as they relate between yields derived from market information in relation to self-administered Where any member has actually opted for to active members only. instruments, principally conventional and pension schemes published by the the 50:50 scheme, this will be allowed for index-linked UK Government gilts as at the Continuous Mortality Investigation (CMI), The financial assumptions in relation to in the assessment of the rate for the next valuation date, reflecting the profile and making allowance for future improvements future service (i.e. the normal cost) are 3 years. Other assumptions are as per the duration of the Fund’s accrued liabilities, but in longevity and the experience of the Fund. based on an overall assumed real discount last valuation. subject to the following two adjustments: The mortality tables used are set out below, rate of 2.75% per annum above the long · an allowance for supply/demand with a loading reflecting Fund specific Expenses term average assumption for consumer price distortions in the bond market is experience. The derivation of the mortality Expenses are met out the Fund, in inflation of 2.2% per annum. incorporated, and assumption is set out in a separate paper as accordance with the Regulations. This is Employer asset shares supplied by the Actuary. Current members allowed for by adding 0.5% of pensionable The Fund is a multi-employer pension Fund · an adjustment due to retirement pensions who retire on the grounds of ill health pay to the contributions as required from that is not formally unitised and so individual being increased annually by the change in are assumed to exhibit average mortality participating employers. This addition is employer asset shares are calculated at the Consumer Price Index rather than the equivalent to that for a good health retiree at reassessed at each valuation. Investment each actuarial valuation. This means it is Retail Price Index an age 4 years older whereas for existing ill expenses have been allowed for implicitly in necessary to make some approximations The overall reduction to RPI inflation at the health retirees we assume this is at an age 3 determining the discount rates. in the timing of cashflows and allocation valuation date is 1.0% per annum. years older. For all members, it is assumed Discretionary Benefits of investment returns when deriving the that the accelerated trend in longevity seen Salary increases employer asset share. in recent years will continue in the longer The costs of any discretion exercised by an In relation to benefits earned prior to 1 term and as such, the assumptions build in a employer in order to enhance benefits for a In attributing the overall investment April 2014, the assumption for real salary level of longevity ‘improvement’ year on year member through the Fund will be subject to performance obtained on the assets of the increases (salary increases in excess of price in the future in line with the CMI projections additional contributions from the employer Fund to each employer a pro-rata principle inflation) will be determined by an allowance with a long-term rate of improvement of as required by the Regulations as and when is adopted. This approach is effectively of 1.5% p.a. over the inflation assumption 1.5% per annum. the event occurs. As a result, no allowance one of applying a notional individual as described above. This includes for such discretionary benefits has been employer investment strategy identical to The mortality before retirement has also allowance for promotional increases. In made in the valuation that adopted for the Fund as a whole unless been adjusted based on LGPS wide the shorter term, the long term salary agreed otherwise between the employer experience. Method and assumptions used increase assumption has been replaced by in calculating the cost of future and the Fund at the sole discretion of the an assumption of 1.0% per annum for the Commutation accrual (or primary rate) Administering Authority. period to 2019/20, reflecting expected It has been assumed that, on average, 50% The future service liabilities are calculated At each review, cashflows into and out of short term pay restraint in the public sector of retiring members will take the maximum using the same assumptions as the funding the Fund relating to each employer, any over this period. tax-free cash available at retirement and target except that a different financial movement of members between employers Pension increases/Indexation of CARE 50% will take the standard 3/80ths cash assumption for the discount rate is used. A within the Fund, along with investment benefits sum. The option which members have to critical aspect here is that the Regulations return earned on the asset share, are allowed Increases to pensions are assumed to be commute part of their pension at retirement state the desirability of keeping the “Primary for when calculating asset shares at each in line with the inflation (CPI) assumption in return for a lump sum is a rate of £12 cash Rate” (which is the future service rate) as valuation. for each £1 p.a. of pension given up. stable as possible so this needs to be taken described above. This is modified Other adjustments are also made on into account when setting the assumptions. appropriately to reflect any benefits which Other Demographics account of the funding positions of orphan are not fully indexed in line with the CPI Following an analysis of Fund experience As future service contributions are paid in bodies which fall to be met by all other (e.g. Guaranteed Minimum Pensions where carried out by the Actuary, the incidence of respect of benefits built up in the future, active employers in the Fund. the LGPS is not required to provide full ill health retirements, withdrawal rates and the FSR should take account of the market indexation). the proportions married/civil partnership conditions applying at future dates, not just assumption have been modified from the the date of the valuation, thus it is justifiable
160 Lancashire County Pension Fund Annual Report 2018/19 161 6
Appendix 6
Appendix A - Actuarial Method and Assumptions
Summary of key whole fund assumptions used for calculating funding target and cost of future accrual (the “primary rate”) for the 2016 actuarial valuation
Long-term yields
Market implied RPI inflation 3.2% p.a. Solvency Funding Target financial assumptions Investment return/Discount Rate 4.4% p.a. CPI price inflation 2.2% p.a. Long Term Salary increases 3.7% p.a. Pension increases/indexation of CARE benefits 2.2% p.a. Future service accrual financial assumptions Investment return/Discount Rate 4.95% p.a. CPI price inflation 2.2% p.a. Long Term Salary increases 3.7% p.a. Pension increases/indexation of CARE benefits 2.2% p.a.
Life expectancy assumptions The post retirement mortality tables adopted for this valuation, along with sample life expectancies, are set out below:
Base Table Improvements Adjustment (M / F) Current pensioners: Normal health S2PA CMI_2015 [1.5%] 99% / 93% Normal health + 3 Ill-health S2PA CMI_2015 [1.5%] years Dependants S2PMA / S2DFA CMI_2015 [1.5%] 122% / 106% Future dependants S2PMA / S2DFA CMI_2015 [1.5%] 116% / 113% Current active / deferred: Active normal health S2PA CMI_2015 [1.5%] 98% / 89% Normal health + 4 Active ill-health S2PA CMI_2015 [1.5%] years Deferred S2PA CMI_2015 [1.5%] 125% / 102% Future dependants S2PMA / S2DFA CMI_2015 [1.5%] 105% / 102%
Other demographic assumptions are set out in the Actuary’s formal report.
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Appendix 6
Appendix B – employer deficit recovery plans
As the assets of the Fund are less than Administering Authority’s view of the discretion of the Administering Authority, In determining the actual recovery period for an employer or a particular group of the future. The Administering Authority the liabilities at the effective date, a deficit employer’s covenant and risk to the Fund. the option of prepaying the deficit to apply for any particular employer or employers. Any such exceptions would be therefore would be willing to use its recovery plan needs to be adopted such Recovery periods will be set by the contributions in one lump sum, either on employer grouping, the Administering determined by the Head of the Fund and discretion to accept an evidenced based that additional contributions are paid into Fund on a consistent basis across annual basis or a one-off payment. This Authority may take into account some or all reported to the Committee. affordable level of contributions for the the Fund to meet the shortfall. employer categories where possible and will be reflected in the monetary amount of the following factors: Other factors affecting the Employer organisation for the three years 2017/2020. Deficit contributions paid to the Fund by communicated as part of the discussions requested via a reduction in overall £ deficit • The size of the funding shortfall; Deficit Recovery Plans Any application of this option is at the each employer will normally be expressed with employers. This will determine the contributions payable. ultimate discretion of the Head of the Fund • The business plans of the employer; As part of the process of agreeing funding in order to effectively manage risk across as £s amounts and it is the Fund’s objective minimum contribution requirement The determination of the recovery periods plans with individual employers, the • The assessment of the financial covenant the Fund. It will only be considered after that any funding deficit is eliminated as and employers will be free to select any is summarised in the table below: Administering Authority will consider the of the Employer, and security of future the provision of the appropriate evidence quickly as the participating employers shorter deficit recovery period and higher use of contingent assets and other tools can reasonably afford based on the contributions if they wish, including, at the income streams; as part of the covenant assessment and also such as bonds or guarantees that could the appropriate professional advice. • Any contingent security available to the assist employing bodies in managing the Fund or offered by the Employer such as cost of their liabilities or could provide For those bodies identified as having guarantor or bond arrangements, charge a weaker covenant, the Administering Category Normal Deficit Recovery Period Derivation the Fund with greater security against over assets, etc. outstanding liabilities. All other things equal Authority will need to balance the level Fund Employers 16 years Determined by reducing the period from the The objective is to recover any deficit this could result in a longer recovery period of risk plus the solvency requirements preceding valuation by at least 3 years and to over a reasonable timeframe, and this being acceptable to the Administering of the Fund with the sustainability of the ensure contributions do not reduce versus will be periodically reviewed. Subject to Authority, although employers will still be organisation when agreeing funding plans. those expected from the existing plan. affordability considerations a key principle expected to at least cover expected interest As a minimum, the annual deficit payment will be to maintain overall contribution level costs on the deficit. must meet the on-going interest costs to at least at the expected monetary levels ensure, everything else being equal, that the It is acknowledged by the Administering deficit does not increase in monetary terms. Open Admitted Bodies 16 years Determined by reducing the period from the from the preceding valuation (allowing for Authority that, whilst posing a relatively preceding valuation by at least 3 years and to any indexation in the deficit payments over low risk to the Fund as a whole, a number Notwithstanding the above, the ensure contributions do not reduce versus the recovery period). of smaller employers may be faced with Administering Authority, in consultation those expected from the existing plan. In exceptional circumstances the Fund significant contribution increases that could with the actuary, has also had to consider may depart from the above principles seriously affect their ability to function in whether any exceptional arrangements should apply in particular cases. Closed Employers Minimum of 16 years and the future working Determined by the future working life of the lifetime of the membership membership, and to ensure contributions do not reduce versus those expected from the existing plan.
Employers with a limited participation in the Determined on a case by case basis Length of expected period of participation in Fund the Fund
164 Lancashire County Pension Fund Annual Report 2018/19 165 6
Appendix 6
Appendix C - Ill-Health Captive For Small Employers Appendix D - Glossary
Overview Employers Actuarial Valuation: an investigation by CPI: acronym standing for “Consumer Employing bodies: any organisation For certain employers in the Fund, following Those employers (both existing and new) an actuary into the ability of the Fund to Prices Index”. CPI is a measure of inflation that participates in the LGPS, including discussions with the Fund Actuary and that will be included in the captive are meet its liabilities. For the LGPS the Fund with a basket of goods that is assessed on admission bodies and Fund employers. after considering potential alternative those with less than 150 active members Actuary will assess the funding level of an annual basis. The reference goods and Equities: shares in a company which are insurance arrangements, a captive insurance (excluding major Councils). each participating employer and agree services differ from those of RPI. These bought and sold on a stock exchange. arrangement is to be established by the contribution rates with the administering goods are expected to provide lower, less For all other employers who do not form authority to fund the cost of new benefits volatile inflation increases. Pension increases Funding or solvency Level: the ratio administering authority to cover ill-health part of the captive arrangement, the current of the value of the Fund’s assets and the retirement costs. This will apply for all ill- and make good any existing deficits as in the LGPS are linked to the annual change treatment of ill-health retirements would set out in the separate Funding Strategy in CPI. value of the Fund’s liabilities expressed as a health retirements from 1 April 2016. still apply i.e. the Fund continues to monitor percentage. Statement. The asset value is based on Covenant: the assessed financial strength The captive arrangement operates as ill-health retirement strain costs incurred market values at the valuation date. Funding Strategy Statement: this is a key follows: against allowance certified with recovery of of the employer. A strong covenant indicates Administering Authority: the council with a greater ability (and willingness) to pay governance document that outlines how • “Premiums” are paid by the eligible any excess costs from the employer once the the administering authority will manage allowance is exceeded. a statutory responsibility for running the for pension obligations in the long run. A employers into a captive fund which is Fund and that is responsible for all aspects weaker covenant means that it appears that employer’s contributions and risks to the tracked separately by the Fund Actuary in Premium Review of its management and operation. the employer may have difficulties meeting Fund. the valuation calculations. The premiums As part of the each actuarial valuation its pension obligations in full over the longer Investment Strategy: the long-term are included in the employer’s future Admission bodies: A specific type of exercise (or earlier review if appropriate) the term or affordability constraints in the short distribution of assets among various asset service % contribution rate. The premium employer under the Local Government Fund Actuary will review the experience of term. classes that takes into account the Funds for 2017/20 is 1.5% pa. Pension Scheme (the “LGPS”) who do the captive fund since the last review. not automatically qualify for participation Deficit: the extent to which the value of objectives and attitude to risk. • The captive fund is then used to meet Should the premiums paid into the captive in the Fund but are allowed to join if they the Fund’s past service liabilities exceeds Government Actuary’s Department strain costs emerging from ill-health fund over the period not be sufficient satisfy the relevant criteria set out in the the value of the Fund’s assets. This relates (GAD): the GAD is responsible for retirements i.e. there is no impact on to cover the ill-health retirement costs Regulations. to assets and liabilities built up to date, providing actuarial advice to public sector funding position for employers within the emerging, any shortfall in the fund will be and ignores the future build-up of pension clients. GAD is a non-ministerial department captive Benchmark: a measure against which fund allocated across all those employers within performance is to be judged. (which in effect is assumed to be met by of HM Treasury. • Any shortfall in the captive fund is the Fund underwriting the captive. If any future contributions). Best Estimate Assumption: an Guarantee / guarantor: a formal promise effectively underwritten by all other excess funds are built up in the Captive, assumption where the outcome has a 50/50 Deficit recovery period: the target length by a third party (the guarantor) that it will employers within the Fund. If any excess some or all of those excess funds will be chance of being achieved. of time over which the current deficit is meet any pension obligations not met by funds are built up in the Captive, some held in reserve to act as a contingency intended to be paid off. A shorter period will a specified employer. The presence of a or all of those excess funds will be held against future adverse experience at the Bonds: loans made to an issuer (often give rise to a higher annual contribution, and guarantor will mean, for instance, that the in reserve to act as a contingency against discretion of the administering authority a government or a company) which vice versa. Fund can consider the employer’s covenant future adverse experience at the discretion based on the advice of the actuary. undertakes to repay the loan at an agreed to be as strong as its guarantor’s. of the administering authority based on the later date. The term refers generically to Discount Rate: the rate of interest used to The ongoing premium payable by those advice of the actuary, corporate bonds or government bonds convert a cash amount e.g. future benefit Letting employer: an employer that employers within the captive fund will (gilts). payments occurring in the future to a outsources part of its services/workforce • Premiums payable subject to review from also be assessed as part of this process present value. to another employer, usually a contractor. valuation to valuation depending on and will be set by the Actuary to cover the Career Average Revalued Earnings Employer’s Future Service Contribution The contractor will pay towards the experience and included in employer rates. period until the next review (e.g. to the Scheme (CARE): with effect from 1 April Rate: the contribution rate payable by an LGPS benefits accrued by the transferring next actuarial valuation assessment). The 2014, benefits accrued by members in the • Over the longer-term, given the regular employer, expressed as a % of pensionable members, but ultimately the obligation to Premiums that will be assessed will take LGPS take the form of CARE benefits. Every review of the premiums payable into the pay, as being sufficient to meet the cost pay for these benefits will revert to the letting into account the expected level of future year members will accrue a pension benefit Captive fund there would be expected of new benefits being accrued by active employer. ill-health retirements across those equivalent to 1/49th of their pensionable pay to be no net cost to those employers members in the future. The cost will be net employers within the captive and also to in that year. Each annual pension accrued underwriting the Captive Fund in the of employee contributions and will include reflect any adverse/favourable experience receives inflationary increases (in line with long-term i.e. any fluctuations in their own an allowance for the expected level of where appropriate. the annual change in the Consumer Prices contribution requirements arising from administrative expenses. experience would smooth out over time. Index) over the period to retirement.
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Appendix 6
Appendix D - Glossary
Liabilities: the actuarially calculated Orphan liabilities: liabilities in the Fund includes: the proportions which are active, Fund / Scheme Employers: employers that present value of all benefit entitlements for which there is no sponsoring employer deferred or pensioner; the average ages of have the statutory right to participate in the i.e. Fund cashflows of all members of the within the Fund. Ultimately orphan liabilities each category; the varying salary or pension LGPS. These organisations (set out in Part Fund, built up to date or in the future. must be underwritten by all other employers levels; the lengths of service of active 1 of Schedule 2 of the 2013 Regulations) The liabilities in relation to the benefit in the Fund. members vs their salary levels, etc. would not need to designate eligibility, entitlements earned up to the valuation Percentiles: relative ranking (in hundredths) Prudent Assumption: an assumption unlike the Part 2 Fund Employers. date are compared with the present market of a particular range. For example, in terms where the outcome has a greater than Section 13 Valuation: in accordance value of Fund assets to derive the deficit of expected returns a percentile ranking of 50/50 chance of being achieved i.e. the with Section 13 of the Public Service and funding/solvency level. Liabilities can 75 indicates that in 25% of cases, the return outcome is more likely to be overstated Pensions Act 2014, the Government be assessed on different set of actuarial achieved would be greater than the figure, than understated. Legislation and Guidance Actuary’s Department (GAD) have been assumptions depending on the purpose of and in 75% cases the return would be lower. requires the assumptions adopted for an commissioned to advise the Department the valuation. Phasing/stepping of contributions: actuarial valuation to be prudent. for Communities and Local Government LGPS: the Local Government Pension when there is an increase/decrease in Rates and Adjustments Certificate: a (DCLG) in connection with reviewing the Scheme, a public sector pension an employer’s long term contribution formal document required by the LGPS 2016 LGPS actuarial valuations. All LGPS arrangement put in place via Government requirements, the increase in contributions Regulations, which must be updated at Funds therefore will be assessed on a Regulations, for workers in local can be gradually stepped or phased in over least every three years at the conclusion of standardised set of assumptions as part of government. These Regulations also an agreed period. The phasing/stepping can the formal valuation. This is completed by this process. dictate eligibility (particularly for Scheduled be in equal steps or on a bespoke basis for the actuary and confirms the contributions Solvency Funding Target: an assessment Bodies), members’ contribution rates, each employer. to be paid by each employer (or pool of of the present value of benefits to be paid benefit calculations and certain governance employers) in the Fund for the three year in the future. The desired funding target is requirements. Pooling: employers may be grouped together for the purpose of calculating period until the next valuation is completed. to achieve a solvency level of a 100% i.e. Maturity: a general term to describe a Fund contribution rates, (i.e. a single contribution Real Return or Real Discount Rate: a assets equal to the accrued liabilities at the (or an employer’s position within a Fund) rate applicable to all employers in the pool). rate of return or discount rate net of (CPI) valuation date assessed on the ongoing where the members are closer to retirement A pool may still require each individual inflation. concern basis. (or more of them already retired) and the employer to ultimately pay for its own share Valuation funding basis: the financial investment time horizon is shorter. This has Recovery Plan: a strategy by which an of deficit, or (if formally agreed) it may allow employer will make up a funding deficit over and demographic assumptions used to implications for investment strategy and, deficits to be passed from one employer to determine the employer’s contribution consequently, funding strategy. a specified period of time (“the recovery another. period”), as set out in the Funding Strategy requirements. The relevant discount Members: The individuals who have built Prepayment: the payment by employers Statement. rate used for valuing the present value of up (and may still be building up) entitlement liabilities is consistent with an expected rate of contributions to the Fund earlier than Scheduled bodies: types of employer in the Fund. They are divided into actives that certified by the Actuary. The amount of return of the Fund’s investments. This (current employee members), deferreds explicitly defined in the LGPS Regulations, includes an expected out-performance paid will be reduced in monetary terms whose employers must be offered (ex-employees who have not yet retired) compared to the certified amount to reflect over gilts in the long-term from other asset and pensioners (ex-employees who have membership of their local LGPS Fund. classes, held by the Fund. the early payment. These include Councils, colleges, now retired, and dependants of deceased 50/50 Scheme: in the LGPS, active ex-employees). Present Value: the value of projected universities, police and fire authorities etc, benefit payments, discounted back to the other than employees who have entitlement members are given the option of accruing Minimum risk funding basis: more valuation date. to a different public sector pension scheme a lower personal benefit in the 50/50 cautious funding basis than the existing Scheme, in return for paying a lower level of Profile: the profile of an employer’s (e.g. teachers, police and fire officers, valuation basis. The relevant discount university lecturers). contribution. rate used for valuing the present value membership or liability reflects various of liabilities is based on the yields from measurements of that employer’s members, Government Bonds or Swaps. i.e. current and former employees. This
168 Lancashire County Pension Fund Annual Report 2018/19 169 7
Appendix 7
Investment Strategy Statement
1. Introduction 2. Investment Objectives 3. Asset Allocation Asset Class Long-Term Return Drivers Economic Inflation * Geography Currency Lancashire County Council (“LCC”) is the The Fund’s primary investment objective Framework Growth * administering authority of the Lancashire is to ensure that over the long term the To pay benefits over time the Fund needs to County Pension Fund (the “Fund”). Fund will have sufficient assets to meet all generate a rate of return that is at least equal Global Equity - Economic growth - Dividend income - Earnings growth + +/ - ** Diversified Diversified This Investment Strategy Statement pension liabilities as they fall due. to the actuarial discount rate. The starting - Change in company valuation (“the Statement”) has been prepared In order to meet this overriding objective the point for considering asset allocation is in accordance with DCLG guidance on Committee maintains an investment policy a simple portfolio of bonds and equities. Private Equity - Economic growth - Company growth - Earnings growth + +/ - ** Diversified Diversified Preparing and Maintaining an Investment so as to: However, this basic portfolio does not - Change in company valuation - Availability of finance - Strategy Statement (July 2017) and after maximise diversification and therefore risk Illiquidity premium taking appropriate advice. • Maximise the returns from investments adjusted return. whilst keeping risk within acceptable levels As set out in the Regulations, the and ensuring liquidity requirements are at In order to prudently diversify sources of risk Fixed Income - Yield (minus credit losses) - Valuation increases as - - Diversified Diversified Committee will review this Statement from all times met; and return, the Fund allocates capital across bonds approach maturity - Change in yield time to time, but at least every three years, a wide variety of different asset classes. To and revise it as necessary. Also, in the event • Contribute towards achieving and be added to the portfolio, asset classes Alternative - Yield (minus credit losses) - Valuation increases as + - Diversified Diversified of a significant change in relation to any maintaining a future funding level of 100%; are first judged for suitability; they have Credit bonds approach maturity - Change in yield - Illiquidity matter contained in this Statement, changes The Fund will use its influence as a to be well understood by the committee, premium will be reflected within six months of the large institutional investor to encourage consistent with the Fund’s risk and return Property - Rental yield (minus expenses) - Rental growth - Capital + +/ - ** Predominantly Predominantly change occurring. responsible long-term behaviour. objectives; and they have to make a growth UK GBP The Regulations require all Administering significant Authorities to take “proper advice” when contribution to the portfolio by improving Infrastructure - Dividend income - Dividend growth - Capital growth + + Predominantly Predominantly formulating an investment strategy. In overall return and risk characteristics. In UK GBP preparing this document and the overall addition, the new asset classes have to be Total Return - Diversified Low Low Diversified Diversified investment strategy the Committee has less than perfectly correlated with equities correlation correlation taken advice from the LCPF Investment and bonds, so that the portfolio benefits Panel (a panel of independent advisors from increased diversification. The fund has Cash - Yield + - Predominantly Predominantly appointed by LCC for the purpose of identified a total of eight asset classes that, UK GBP providing advice on pension related combined, form the policy portfolio. * Sensitivities shown are to positive shocks, i.e., if growth and inflation surprise on the upside. matters), the Lancashire Local Pension The eight asset classes shown below have Board and the Local Pension Partnership ** Property, public and private equities expected to provide partial inflation protection. different exposures to economic factors Investment Limited which is a FCA (GDP growth and inflation) and combine regulated investment manager with specific different geographies and currencies. expertise and regulatory permissions to In assessing suitability the Committee provide advice on investments. has considered the respective return drivers, exposure to economic growth and These are the eight building blocks used to The benchmark weight and tolerances allocation back within the range as soon as sensitivity to inflation – each an important create the policy portfolio. The Committee, are shown in the table below. The weights suitable opportunities are identified. consideration, relative to the sensitivities of advised by the Investment Panel, have are to be maintained within the ranges, The Investment Panel review the Strategic the Fund’s liabilities and managing risk. determined benchmark weights to each as long as the scheme can find attractive Asset Allocations and recommend any asset class which it believe to be best suited opportunities that meet its return, risk, and changes to the Committee. Consequently, to meeting the long term objectives of the cash flow requirements. In the absence there were some alterations to the Strategic Fund. It has also identified tolerance ranges of opportunities investments will not be Asset Allocations approved by Committee within which shorter term variations would “forced” and under/over allocations may in December 2017. In addition, the be tolerated and/or actively pursued due be made to any asset class whilst also Committee and/or the LCPF Investment to a combination of relative returns and remaining within the tolerance ranges. Panel review any exposures which arise investment opportunity. Should any allocation fall outside of the outside these tolerances and advise range the Committee shall seek to bring the appropriate action.
170 Lancashire County Pension Fund Annual Report 2018/19 171 7
Appendix 7
Investment Strategy Statement
Asset Class Benchmark weight (%) Range (%) Alternative Credit recommendations to the Pension Fund resources beyond that which would be The objective is to gain cost effective Committee; available to the Fund alone. This facilitates Global Equities 42.5 40-50 exposure to diverse sources of return • Advise on strategic and/or tactical asset lower costs and a broader opportunity linked to global credit markets and credit allocations proposed by LPP I set which together facilitate improved net Private Equity 5.0 0-10 instruments. The LPP I investment pool returns. Pooled vehicles are used wherever • Restrict and control the range of asset will pursue this aim primarily by allocating appropriate. Where assets are not physically Property 15.0 10-20 allocations used by LPP I capital to investment vehicles, mandates pooled the management is typically pooled. Infrastructure 15.0 10-20 or pooled funds managed by external • consider appropriate risk management The partnership has created eight third parties (“External Mandates”). The strategies to include the matching of investment pools to allow access to the Fixed Income 2.5 0-5 benchmark is the 1 month GBP LIBOR. pension liabilities with suitable investments, asset classes listed in the Asset Allocation possibly involving derivatives, and where Alternative Credit 19.0 10-25 Total Return Framework section. The investment pools necessary make recommendations to the are a combination of internally managed The LPP I total return pool seeks to gain Total Return 0.0 0-5 Pension Fund Committee; and externally managed strategies that offer cost effective exposure to diversifying an effective and efficient way of achieving sources of return distinct from global • consider foreign exchange hedging Cash 1.0 0-5 asset class exposures. equity beta and bond duration. The LPP strategies relating to the equity and/or other Total 100.0 I pool will pursue this aim primarily by asset allocations and where necessary make The Fund also expects to benefit from scale allocating capital to investment strategies recommendations to the Pension Fund via pooling arrangements with other funds managed by external third parties (“External committee; in order to better access direct investments The policy portfolio has a number of Global Equities real estate market. A smaller allocation will Mandates”). The benchmark is the 1 month • monitor and review the investment activity; in areas such as infrastructure. illiquid assets that could prove difficult to be made to value-added and opportunistic The objective is to outperform the MSCI All GBP LIBOR and Some of the pools are expected to use sell in a period of market turmoil. Due to investments. The benchmark is the UK CPI Country World, net dividends reinvested, in Cash/ Liquidity • Review and report on the performance derivatives as part of their strategies. the fact that most of these assets generate + (4-6)% pa net over a 10 year period. GBP Index over the full market cycle which of the Fund and where necessary make Derivatives can reduce implementation income that can be used to pay benefits The objective is to achieve cost effective is considered to be at least seven years (the Infrastructure recommendations to the Pension Fund costs, or change economic exposures. They throughout the business cycle, (e.g. income management of cash balances by allocating “Benchmark”). Equity investments are made Committee. may be used for both active and passive from infrastructure and rent payments from The objective is to gain cost effective, capital to securities or funds in appropriate via LPP I, by investing in underlying funds management strategies. The broad use properties), the scheme has determined diversified exposure to global infrastructure markets. The benchmark for the Liquidity The implementation of the asset allocation which may be managed by LPP I (“Internal of derivatives is explicitly approved by the that the illiquidity premiums that are assets located predominantly in the UK pool is 1 month GBP LIBOR. is delegated to an expert investment Mandates”), or by external third parties Committee for both investment purposes generated from holding these assets are or otherwise in OECD nations. These manager – Local Pension Partnership (“External Mandates”). 4. Investment Governance and efficient portfolio management. Both enough compensation for the level of risk. investments seek to generate a satisfactory Investment Ltd (LPP I). LCC is a founding Private Equity risk adjusted return; improve diversification; The Committee is responsible for approving shareholder of LPP I and maintains ongoing exchange traded and over the counter Each asset class has its own specific The objective is to outperform the MSCI provide predictable cash flows; and and reviewing on a regular basis an overall corporate governance controls but plays derivatives may be used. investment objective (benchmark and World, net dividends reinvested, in GBP indirectly hedge against inflation. The Investment Strategy and determining asset no direct role in Investment Management Whilst this Statement is permissive investment performance target) and Index and provide investors with access to benchmark is the UK CPI + (4-6)% pa net allocation to such asset classes as the activities. The Committee, advised by the with regards to the use of derivatives in within each asset class there are further attractive private equity opportunities. All over a 10 year period Investment Panel consider appropriate. This LCPF Investment Panel, will monitor the general, the practical implementation diversification controls. The mandates are new investments will include, but not be Fixed Income includes setting the higher level objectives performance of LPP I and the portfolio. of these freedoms is limited by specific managed by Local Pensions Partnership and risk tolerances of the scheme. The limited to the following sectors: Buyout, The objective is to outperform the 1 month Investment Implementation agreements in place between the Fund and Investments Ltd (LPP I), to whom the Fund Committee, in conjunction with the Venture Capital, Growth Equity, Special GBP LIBOR. The LPP I Pool will pursue LPP I. The LCPF Investment Panel advise has delegated investment management scheme’s actuary, sets the required rate of The implementation of investment Strategy Situations/Distressed and Upstream Energy. this aim by investing in underlying funds the Committee on these agreements. and implementation duties in line with the return needed to achieve its objectives and is delegated to Local Pensions Partnership Property which may be managed by LPP I (“Internal Derivatives shall only be used where principle of asset pooling within LGPS. the risks it is willing to take. Once these Investment Ltd, an FCA authorised Mandates”), or by external third parties their use is agreed within these specific LPP I has discretion to act on behalf of The objective is to gain cost effective, parameters are established, the Committee company. The partnership was set up (“External Mandates”) which are consistent agreements. the Committee in order to implement the diversified exposure to UK and international will determine the strategic asset allocation by the London Pensions Fund Authority with the Fixed Income Pool’s investment allocations set out in the Policy Portfolio. property assets that meet its investment or policy portfolio that it believes has the (LPFA) and Lancashire County Council objectives and restrictions. This includes determining any over/under objectives: to generate a return in excess of highest probability of succeeding. for the purpose of achieving economies of allocation within the tolerance ranges. the benchmark; earn predictable cash flows; The Investment Panel will: scale, greater internal resource and superior Should allocations fall outside of the ranges and provide a partial hedge against inflation. investment opportunities. The partnership LPP I is responsible for informing LCPF and The largest exposure of the portfolio will be • review the Fund’s long term investment brings the benefit of scale and expert agreeing appropriate action. to traditional sectors of the UK commercial strategy and where necessary make
172 Lancashire County Pension Fund Annual Report 2018/19 173 7
Appendix 7
Investment Strategy Statement
5. Pooling of Assets 6. Risk Management asset class diversification, including sector, Policy Portfolio. In practice, LCPF would The overriding objective of the Fund in country, manager, and maximum exposure expect to work collaboratively with LPP LPP I are responsible for managing 100% of be held as legacy assets if; the costs of respect of its investments is to maximise to a single asset. I to identify and remedy the cause of any the assets of the Fund. The large majority transitioning outweigh any potential gains, return within an acceptable and understood Operational risk is minimised by having underperformance. of the Fund’s assets have been transitioned the assets have reached “harvesting period”, level of risk custody of the Fund’s financial assets 7. Environmental Social and into investment pooling vehicles, also or transitioning would have a negative provided by a regulated, external, third managed by LPP I. A small minority of impact on the scheme’s investment strategy. Key risks to the Fund as outlined in the Corporate Governance (ESG) Funding Strategy Statement are: party, professional custodian. Equivalent Policy, and approach to social assets will remain on the balance sheet Proceeds from assets in “harvesting period” arrangements are in place where of the Fund as “legacy assets”. Assets will will be reinvested through LPP asset pools. • Investment markets fail to perform in line investments are made into pooled vehicles, investments with expectations such as those managed by LPP I. The Fund is committed to being a long • Market yields move at variance with Performance measurement term responsible investor. The Fund LCPF Assets assumptions complies with and follows the principles Fund performance is measured at a number of both the UK Stewardship Code and to • Investment Fund Managers fail to achieve of different levels. The objective of the Fund Asset Class Transitioned / Legacy* Total* Legal Structure performance targets over the longer term the UN-backed Principles of Responsible is to outperform the actuarial discount Investment. Transitioning* especially as there is a large concentration of rate. The Policy Portfolio is selected by the investments with LPP with the resultant risk Responsible Investment is an investment Public Equity 43.8% 0.0% 43.8% Authorised Collective Committee, with advice from the LCPF of personnel change approach which recognises the significance Scheme Investment Panel, and LPP I, the delegated • Asset re-allocations in volatile markets may investment manager, and is expected to of the long-term health and stability of the Private Equity 7.4% 0.0% 7.4% Limited Partnership lock in past losses generate returns above the discount rate market as a whole and encompasses over the long run. • the integration of material ESG factors Infrastructure 9.2% 3.4% 12.5% Limited Partnership • Pay and price inflation is significantly higher than anticipated The performance of the pooling within investment analysis and decision- arrangements is monitored via regular making Property 9.6% 0.5% 10.1% Exempt Unauthorised • Demographic risks Unit Trust** reporting and through quarterly Investment • the active use of ownership rights in order • Regulatory changes Panel meetings. Performance for LPP I is to protect and enhance shareholder value Total Return 0.0% 0.0% 0.0% Limited Partnership ** • Changes to national pension requirements measured against the policy portfolio. LPP over the long term – primarily through and/or Inland Revenue rules I seeks to outperform the policy portfolio voting and engagement. Alternative Credit 13.7% 8.5% 22.1% Limited Partnership ** on a risk adjusted basis, via active sub-asset These risks are monitored and managed The objective of responsible investment class selection, selecting the best stocks/ with diversification being a very important is to decrease investor risk and improve Fixed Income 0.0% 0.0% 0.0% Authorised Collective managers for each of the pools and by risk management tool. As described in the risk-adjusted returns. Responsible Scheme ** implementing investments in a low cost section on Asset Allocation, the scheme will investment principles are at the foundation manner. Performance for the investment Cash 4.3% 0.0% 4.3% Authorised Collective seek to maintain a diversified exposure to of the Fund’s approach to stewardship pools is measured against widely used and Scheme*** several different asset classes, geographies, and underpin the Fund’s fulfilment of its transparent benchmarks. Total 87.6% 12.4% 100.0% Information correct as and currencies. The Committee expect this fiduciary duty to scheme beneficiaries. at 31st December 2017. to provide (at least) two levels of protection: Where performance falls short of The Pension Fund has established first, in periods of market turmoil, some expectations the Committee and the a Responsible Investment Working * estimated figures ** subject to change *** cash pooling vehicle currently dormant assets will preserve capital better than Investment Panel will identify the cause of Group with a remit to review current others, allowing the portfolio to better this underperformance and will respond arrangements and to report to the withstand a shock. Second, in periods of appropriately either to alter its Policy Pension Fund Committee on findings Portfolio (where asset allocation is the November 2015 investment reform and consultation. This structure and associated rising markets, some assets will do better and recommendations. This is in line with underlying cause) or to require changes to criteria guidance on pooling business plan is consistent with the criteria than others, and since the Board do not fulfilling the duties of Lancashire County the management of the pooling vehicles contained within the November guidance know with certainty which ones will do best, Council as an administering authority under The Fund has selected Local Pensions (where management skill within LPP I is the and any change which result in failure to it is better to diversify. the LGPS regulations (the function Partnership Limited (LPP) and its subsidiary underlying cause). This latter intervention is meet the criteria will be notified to the The asset class pools described in the LPP I to facilitate investment pooling. enabled through Committee’s discretion to having been delegated to the Pension Scheme Advisory Board and the secretary implementation section are also subject to LPP has communicated its structure to remove any of the LPP I pooled funds from Fund Committee). The Working Group of State. a number of constraints to allow for intra- DCLG via its response to the July 2016 the list of approved funds for use within the has consulted with the Local Pension
174 Lancashire County Pension Fund Annual Report 2018/19 175 7
Appendix 7
Investment Strategy Statement
Board as part of developing an RI Policy relevant social factors to the extent these governance practices. The policy is reviewed and a Policy on Climate Change for the indirectly or directly impact on financial risk and updated on an annual basis to reflect Fund which set out values, principles and return. emerging issues and trends. and priorities. Both policies are currently Exercising the Rights of Ownership A quarterly report on voting activity is under recommendation to the Pension The Fund recognises that encouraging the available from the LPP website which is Fund Committee and are available at the signposted via a link from the LCPF website. following link. highest standards of corporate governance and promoting corporate responsibility by Engagement Responsibility for the practical investee companies protects the financial implementation of the Fund’s approach to The Fund’s approach to engagement interests of pension fund members over recognises the importance of working RI is devolved to LPP I as LCPF’s provider of the long term. The Fund’s commitment investment management services. in partnership to magnify the voice and to actively exercising the ownership rights maximise the influence of investors as ESG integration and the active use of attached to its investments, reflects the owners. The Fund appreciates that to gain ownership influence are integral to the Fund’s conviction that responsible asset the attention of companies in addressing investment management services provided owners should maintain oversight of the governance concerns, it needs to join with by LPP I, which are delivered in accordance way in which, the enterprises they invest other investors sharing similar concerns. It with an LPP I Responsible Investment in are managed and how their activities does this primarily through: Policy. It is an LPP I RI belief that ESG impact upon customers, clients, employees, factors are relevant at every stage in the stakeholders, and wider society. • Membership of representative bodies including the Local Authority Pension Fund investment cycle - within investment The routes for exercising ownership strategy, investment selection and within the Forum (LAPFF) and the Pensions and influence vary across asset types and a Lifetime Savings Association (PLSA). stewardship of assets in ownership. As part range of activities are undertaken on the of a prudent approach which applies care, Fund’s behalf by LPP I, including direct • Giving support to shareholder resolutions skill and diligence LPP I procedures ensure representation on company boards, where these reflect concerns which are that ESG issues are routinely considered as presence on investor & advisory committees shared and represent the Fund interests; part investment analysis, are incorporated and participation in partnerships and • Joining wider lobbying activities when into the due diligence leading to investment collaborations with other investors. In the appropriate opportunities arise. selection and continue to be monitored and case of listed equities the most direct form The Fund is a Tier 1 signatory to the reviewed as part of the active ownership of of ownership influence comes through assets under management. UK Stewardship Code and a detailed shareholder voting and engagement. statement of compliance which explains The approach to incorporating ESG factors Voting the arrangements which support its is to establish the type and materiality of In most cases the Fund holds no direct commitment to each of the seven principles relevant issues on a case by case basis, ownership of shares of companies. is displayed on the Fund’s website. whilst taking account of global norms, However, through the investments managed rather than to apply artificial exclusions 8. Compliance with Myners’ by LPP I, the Fund has indirect ownership through negative screening. ESG factors Principles interests in listed companies across the are considered over the time horizon within globe. To ensure effective and consistent In 2000, the Government commissioned which specific investments are likely to be use of the voting rights attached to these a ‘Review of Institutional Investment in held, in order to clarify the context that assets LPP I, works with an external provider the United Kingdom’ by Paul Myners. risks and returns operate within and assist of governance and proxy voting services. Following the report the Government the evaluation of investment risks and issued a set of investment principles which opportunities. Voting is undertaken centrally rather than have subsequently been reviewed by HM being delegated to individual managers and The Fund shall invest on the basis of Treasury. is in line with LPP I’s Shareholder Voting financial risk and return having considered a Policy, which promotes risk mitigation and The Fund has considered the principles and full range of factors contributing to financial long-term shareholder value creation by considers that it is compliant with them. risk including both those detailed above and supporting responsible global corporate
176 Lancashire County Pension Fund Annual Report 2018/19 177 Contact Details www.yourpensionservice.org.uk
Benefits and other administrative issues LPP – Your Pension Service PO Box 1381 Preston PR2 0WP Phone: 0300 323 0260 Email: [email protected]
Investment management LPP Norwest Court Guildhall Street Preston PR1 3NU Phone: 0300 323 0260 Email: [email protected]
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Pension Fund Accounts Abigail Leech Head of Pension Fund Phone: 01772 530808 E-mail: [email protected]