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2016 annual report serious revamp.qxp_Layout 1 13/06/2016 15:24 Page 1 West Midlands Pension Fund West Midlands ITA Contributing annual report together for and accounts your future2016 2016 annual report serious revamp.qxp_Layout 1 13/06/2016 15:24 Page 2 Contents 3 Introduction 79 West Midlands Pension Fund – 4 The Chair of the Pensions Committee and Actuarial Statement as at 31 March 2016 the Strategic Director of Pensions 7 Drivers of Change 8 Management and Financial Performance - Financial Performance 81 West Midlands Pension Fund – - Risk Management Statement of Accounts 17 Pensions Administration – 82 Independent Auditors’ Statement to the Scheme Funding and Administration Report Members of the West Midlands Pension 20 Governance Arrangements Fund (the ‘Authority’) on the Pension Fund - Governance Compliance Statement Financial Statements - Member Training 84 Statement of Responsibilities 28 Internal Audit 85 Fund Account 29 Corporate Responsibility 86 Net Assets Statement 33 Communications Report and 87 Notes to the Accounts Communications Policy Statement 111 Pensions Administration Strategy 2015 36 West Midlands Pension Fund – Management and Financial Performance 37 Fund Highlights 38 Scheme Management and Advisors 121 Funding Strategy Statement 2014 as at 31 March 2016 39 Administrative Management Performance – Overall Fund Statistical Information 43 Contributions Receivable by Employer 131 Statement of Investment Principles 2015 55 West Midlands Pension Fund – 150 Administering Authority Policy Investment Policy and Performance Statement 2015 56 Investment Strategy 62 Top Twenty Equity Holdings 63 Top Twenty Indirect Holdings 64 Corporate Responsibility 157 Further Information 66 Responsible Investment 158 Participating Employers in the Fund 73 Voting Summary 76 List of Bodies of Which the Fund is a Member 77 Assets Held as at 31 March 2016 2 2016 annual report serious revamp.qxp_Layout 1 13/06/2016 15:24 Page 3 Our mission is to pay our members’ pensions as they become due, while providing the highest standards of service to our members and employers 175 West Midlands ITA Pension Fund – 218 ITA Funding Strategy Statement 2014 Management and Financial Performance 176 Fund Highlights 177 Scheme Management and Advisors as at 31 March 2016 226 ITA Statement of Investment Principles 178 Administrative Management Performance – 2013 Administration and Key Operation Data 181 West Midlands ITA Pension Fund – Investment Policy and Performance 182 Investment Report 186 West Midlands Pension Fund – Actuarial Statement as at 31 March 2016 188 West Midlands ITA Pension Fund – Statement of Accounts 190 Explanatory Foreword and the Report of the Treasurer of the West Midlands Integrated Transport Authority Pension Fund 191 The Treasurer’s Report 194 Statement Of Responsibilities for the Pension Fund Accounts 195 Independent Auditor’s Report to the Members of West Midlands Integrated Transport Authority 196 Investment Report 198 Fund Account and Net Assets Statement 199 Notes to the Accounts 3 2016 annual report serious revamp.qxp_Layout 1 13/06/2016 15:24 Page 4 Introduction The Chair of the Pensions For more information, Committee and the Strategic visit wmpfonline.com Director of Pensions Another Year of Major Changes This has been another year of major changes for The Fund remains highly cost-conscious, and the Local Government Pension Scheme (LGPS). aware of the need to demonstrate that it April 2015 saw the introduction of the Fund’s delivers value-for-money for its members and Pensions Board, a new group whose role is to employers. Restructuring of our portfolio has assist the Committee in the good governance of continued during the last year, including the the Fund. In addition, a Scheme Advisory Board introduction of an in-house, actively-managed was established to oversee the operation and global equities portfolio. This, along with other funding of the LGPS at the national level. changes to the portfolio over the last few years, We were proud to be a forerunner in has yielded ongoing savings of almost £25 establishing and recruiting to our own local million per year. Pensions Board, and are very pleased with the role that it has played during its inaugural We are also highly focussed on managing the year. costs of administration. As a result of tight financial controls and ongoing review of budgets It is also a time of major changes across the and expenditure to identify savings, we have wider landscape of pensions. The ability to been able to reduce the cost of administration, access pension savings more flexibly was oversight and governance from £18.70 per introduced in April 2015. This allowed some member last year to £17.72 this year. We are members of pension schemes to access their particularly pleased to have achieved this in light savings earlier, including taking them as a cash of the continuing growth in member numbers – lump-sum. We believe that the LGPS offers an more than 10,000 during 2015/16, and a growth excellent means of providing for an income in in the number of employers from 471 to 536. retirement, and that this is borne out by the very small number of our members who have We are continuing to develop our electronic enquired about the new flexibilities. However, business model, in particular our web portal. further policy and technical changes are The total number of members registered with anticipated in the short- and medium-term that web portal rose dramatically from 23,157 to will impact on the Fund, including pooling of 41,167 over the course of the year. We are investment assets, changes to the taxation of grateful to our members and employers for pensions, early retirement terms and caps on embracing this method of working with us. public sector exit payments. Responsible investment sits at the heart of our It has been a mixed year for investments in a approach to managing our members’ funds. difficult year for markets: although quoted Where companies do not meet the high equities, which make up 48% of total assets, standards that we and fellow investors expect, have seen a year-on-year fall in value, other we challenge them. We believe in an approach areas of the portfolio, notably alternatives, that combines three key elements: voting property and private equity, have performed globally, engagement through partnerships positively. Importantly, the Fund’s performance and shareholder litigation. We are a founder compared to its benchmark return has been member and active participant of the Local good, standing at 2.41% compared to a Authority Pension Fund Forum, which is a benchmark of 0.71%: an out-performance of significant and influential player in the 1.70%. responsible investment arena. Our Assistant Director of Investments also plays a crucial role on the Board of the United Nations-backed Principles for Responsible Investment. 4 2016 annual report serious revamp.qxp_Layout 1 13/06/2016 15:25 Page 5 “...awards and accreditations unambiguously reflect our focus on providing a high-quality service to our members and employers, and on investing in the skills and knowledge of our staff and trustees. ” Councillor Jasbir Jaspal Geik Drever Chair of the Pensions Committee Strategic Director of Pensions 5 2016 annual report serious revamp.qxp_Layout 1 13/06/2016 15:25 Page 6 Introduction The Chair of the Pensions For more information, Committee and the Strategic visit wmpfonline.com Director of Pensions We were delighted to win two awards this year, In addition to investment pooling, there are a recognising our work in the areas of trustee number of other key issues shaping the work of development and responsible investment. the Fund over the medium-term and beyond, In addition, we were very pleased to receive including further pensions reforms, the impact the CIPFA Governance Mark of Excellence, of a changing cash flow profile and declining becoming the first pension fund in the UK to do market returns, the continuing growth in the so, and to maintain our existing accreditations number of members and employers, and the with Investors in People and Customer Service funding strategy to resolve the Fund’s long-term Excellence. These awards and accreditations pensions deficit, which is especially challenging unambiguously reflect our focus on providing in the context of the budgetary constraints faced a high-quality service to our members and by many of our employers. employers, and on investing in the skills and knowledge of our staff and trustees. We are We would like to take this opportunity to thank particularly pleased to note trustees achieved a the members of the Pensions Committee, the combined total of 785.5 hours of training during Investment Advisory Sub-Committee, and the the year. Pensions Board for their work during the year, and whose advice, support and challenge have Overall, this has been a good year for the Fund, been invaluable. We would also like to extend in which we have once again demonstrated our thanks to the Fund’s staff, whose our adaptability and determination to provide professionalism and dedication to the service high-quality services in an environment of of our members throughout a period of change ongoing change. Looking to the future, the has been unfaltering and truly impressive. pace of change will only continue to accelerate, most notably with the introduction of LGPS It is with regret that we note the death of investment asset pooling. Councillor Thomas (Bert) Turner, who passed away on 6 October 2015. Since becoming LGPS Central is a major strategic collaboration Chair of the Pensions Committee in 2014, of eight LGPS funds across the Midlands region. Councillor Turner made a significant contribution It will be a multi-asset manager, investing to the Fund. His common sense, judgement and approximately £35 billion of assets on behalf of humour will surely be missed. its member funds from 2018 onwards.

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