Pension Fund Report and Accounts 2008-2009 ­­­Contents

Section 1: Introduction & Overview 3 Chairman’s Foreword 5 Statement from the Chief Financial Officer 7 Financial Summary 8 Management Structure Section 2: Investments 10 Asset Allocation Benchmark as at 31 March 2009 11 Investment Strategy and Performance 16 Equity and Direct Property Holdings Section 3: Pensions Services 18 Statement from the Pension Services Manager 19 Membership Summary 19 Key Service Standards for Scheme Members 20 Scheme Details 22 Participating Employers of the Fund Section 4: Scheme Actuary 28 Statement by Consulting Actuary Section 5: Annual Statement of Accounts 33 Responsibilities for Statement of Accounts 34 Fund Account 35 Net Asset Statement 36 Notes to the Accounts 45 Statement by External Auditor Section 6: Additional Information 47 Statement of Investment Principles 72 Funding Strategy Statement 96 Governance Compliance Statement 106 Communications Policy Statement 112 Glossary Contact points

2 Essex Pension Fund Annual Report and Accounts 2008–2009 Introduction & Overview 3 , an internal internal an April 2008, could be described, in the09 could be described, of the Report. It met only once once only met It Report. the of Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension The year 2008/ The year curse, as an “interesting of the Chinese words included It Fund. Pension Essex the for time” investment for period worst the perhaps 1920s,markets and economies since the Government Local new a of introduction the 1 Scheme from Pension arrangements governance Fund’s the of review and with the aim of achieving best practice Fund the establishment of the Essex Pension been an It has therefore (the Board). Board of for both the members busy year extremely officers. Fund’s the and ISC and Board the was established as an overarching The Board the functions of the County body to oversee the of Authority Administering as Council Fund of representatives includes and Fund of composition The members. and employers Management the under shown is Board the terms Its publication. this of section Structure set are ISC the of those and reference of Arrangements Governance the in full in out 6 in Section concentrated meeting that and year the during and roles the exploring and explaining on and ISC the Board, the of responsibilities of members new the familiarising and officers Fund. the of operations the with Board the largely remain terms of reference The ISC’s delegated its with continues it and unchanged management the overseeing for responsibility composition The investments. Fund’s the of under the Managementof the ISC is shown It publication. this of section Structure the of each from representatives includes main political parties the political reflecting Independent Council. County Essex of balance 09.

It is my pleasure, as Chairman of the EssexIt is my pleasure, the and Board) (the Board Fund Pension to (ISC) Committee Steering Investment Report and Fund the Essex Pension introduce Accounts for 2008/

Cllr Rodney Bass, became the County County the became Bass, Rodney Cllr Tollesbury and Heybridge for Councillor the on served first He 1997. in 1999 in Committee Steering Investment a – 2001 in Chairman elected was and May In then. since held has he position the of Chairman Vice became he 2008 Council and in June 2008 he was re- Investment the of Chairman as elected of virtue by and, Committee Steering of Chairman first the became office, that Board. Fund the new Essex Pension Chairman’s Chairman’s Foreword observers representing the employers and the The ISC also dealt with a number of other membership also attend and fully participate issues including a revision of its Statement of in discussions. The ISC is supported by Nick Investment Principles, monitoring investment Bell Executive Director of Finance & Deputy manager performance and reviewing its cash Chief Executive and his staff including the Chief management arrangements. Financial Officer Margaret Lee (the Council’s It has been however a disappointing year in Section 151 Officer). Keith Neale (the former terms of investment performance, with the County Treasurer now independent adviser), Fund recording an investment return of -21% Tony Hardy (independent adviser) and Hymans for the 12 months to 31 March 2009. However Robertson (Investment Consultants) are this should be seen in the context of the external advisers to the Fund. severe negative returns that were experienced The ISC has undertaken a full and active across all markets, with the Fund’s benchmark programme of work during the year. It reviewed recording a comparative figure of -19.9%.The its arrangements for independent investment value of the Fund at the year end had fallen to advice through a market testing process. It £2.2 billion. The decrease in the market value reviewed its approach to investments and set of assets held was £709m and investment out for the first time its Core Investment Beliefs. income of £69.9m was received during the year. These were then used in the annual review of I would like to take this opportunity to thank asset allocation and investment management the members of the Essex Pension Fund Board arrangements to develop a Fund structure and and the Investment Steering Committee, asset allocation that was in line with those the Executive Director of Finance, the Chief beliefs. Much of the work of the ISC through Financial Officer, the Investment team, the the remainder of the year has been around the Pensions Services team, Fund advisers and all implementation of the new structure which who participated in the management of the involved terminating 4 active equity mandates, Fund, for their work during the year. increasing mandates for 3 existing global equity managers, a passive manager and the I hope that you find that this report provides emerging markets manager and initiating you with clear information on the activities a search for a new unconstrained global of the Fund and demonstrates the effective equity manager. Details of the Fund structure, management of the Fund’s financial affairs. mandates and fund manager performance are shown on pages 9-14. A full programme of training was approved and arranged for the Committee in order to equip it to undertake the necessary considerations and Cllr. Rodney L. Bass take the required decisions, including sessions Chairman – Essex Pension Fund Board and on environmental, social and governance issues, Investment Steering Committee global property, forestry and timber, the relative value of assets and the Marathon Club principles.

4 Essex Pension Fund Annual Report and Accounts 2008–2009 Introduction & Overview 5 . 21. Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension

The majority of the County Council’s functions County Council’s The majority of the are Fund the of authority administering as the Board, Pension the to either delegated to or (ISC) Committee Steering Investment contributions and Investments officers. its accounting, Fund’s the with along monitoring of Head Quinn, Martin by out carried is Investments the on staff his and Investments administration benefit and Membership Team. Jody by out carried are functions related and and manager Services Pension the Evans, Services.her staff in Pension A report the by activities their on Manager Services Pension appears later in this report 18- on Pages the Chairman of the Pension by The foreword their on detail provides ISC the and Board carried out and the work they have roles The purpose of this statement during the year. Fund the which in manner the highlight to is responsibilities remaining has fulfilled its during the year. a Although – of the Fund Interim Review was not due of the Fund triennial review with 2010, to take place until 31 March until late 2010, the not available results Actuary was commissioned to carry Fund’s 2008. as at March Valuation out an Interim did not constitute a full actuarialThe review an give to intended was but valuation fund the of position financial the of estimate the that showed review The date. that at has fallen to 66%, which funding level overall Valuation. to 80% at the 2007 compares due was year the over level funding in fall The linked Index conditions. market significant to gilt yields fell, as did market investments world. the around

Overview Scheme Pension Government Local the Under Council County the 1997, Regulations (LGPS) to maintain a pension fund (the is required other of those and employees its for Fund) The Fund Scheduled Bodies within its area. to admit the employees is also empowered of certain and parish other bodies, town establishments, educational councils, transferred services providing contractors community and bodies scheduled from now Fund the result a As bodies. interest employing separate 350 contains around bodies. Margaret Lee,was appointed Chief Lee,was Margaret . 2008 Financial Officer in November in She joined Essex County Council with the 1990, and has been involved since 2007. Fund

Chief Financial Officer Statement Statement from the For the 2007 valuation the Actuary has governance and communication arrangements adopted a more cautious approach than of their pension funds. In 2007, the that adopted for the 2004 valuation, with Regulations were further amended to require a strengthening of actuarial assumptions LGPS administering authorities to produce and regarding to increased life expectancy, publish a statement of their compliance with reduced real investment returns and gilt yield a set of best practice governance principles. expectations. The assumptions were also In 2008 those best practice principles were revised to allow for the introduction of the produced in draft and the Fund’s governance new LGPS scheme from 1 April 2008. arrangements were reviewed and revised to achieve compliance. The GCPS has been In the period between the two valuations the revised to reflect what is a material change in investment returns produced by the Fund policy and can be found in section 6 page 96. were pleasing, with a cumulative return over the 3 years of 52.1% (compared to the local General authority average of 49.3%). If the actuarial assumptions had remained unchanged the The number of contributors to the Fund investment performance would have improved continued to increase during the year, as our funding level at 31 March 2007 to 86%. have the numbers of employers in the Fund and it is pleasing that high standards of Funding Strategy Statement (FSS) – Under administration continue to be delivered at low the LGPS (Amendment) Regulations 2004 cost, despite the growing complexity of the administering authorities are required to activities required. You will find elsewhere prepare, maintain and publish a written within this publication the statutory statement statement setting out their funding strategy, on the responsibilities for the Statement of which the Fund’s actuary is required to Accounts, which deals with the formality consider in issuing the rates and adjustment of the arrangements that have been put in certificate following triennial valuations place to ensure that proper practices have of the Fund. The main aim of the FSS is to been observed. I would like to record here my establish a clear and transparent fund-specific appreciation for all the staff involved in the strategy, which will identify how employers’ financial administration of the Fund, for all the pension liabilities are best met going forward work that they have carried out, the care that whilst aiming to maintain as nearly constant they have taken and the high standard that employer rates as possible. The FSS must be has been achieved. revised and republished whenever there is a material change in the policy on the matters set out in either the FSS or the Authority’s Statement of Investment Principles (SIP). This document was revised April 2008 and can be found in section 6 page 46. Margaret Lee Chief Financial Officer Governance and Communications Policy Statement – Under the LGPS (Amendment) Copies of the Interim Actuarial Valuation 2008 (No 2) Regulations, LGPS administering can be obtained by contacting the Investment and authorities were required to produce and Insurance Team or by downloading a copy from the publish Governance and Communication Essex County Council web site. Policy Statements (GCPS) setting out the

6 Essex Pension Fund Annual Report and Accounts 2008–2009 Introduction & Overview

Financial Summary

2004/05 2005/06 2006/07 2007/08 2008/09 £’000 £’000 £’000 £’000 £’000

Value of fund at start of year 1,922,264 2,179,678 2,796,760 3,042,879 2,927,368

Revenue Account for year: Contributions 136,523 156,144 170,203 190,220 211,227

Investment and other income 68,068 78,929 75,626 88,876 92,506

Benefits and other expenses (133,088 ) (151,531 ) (155,526 ) (173,993 ) (183,754 )

71,503 83,542 90,303 105,103 119,979 Increase (decrease) in market value of investments in year 185,911 533,540 155,816 (220,614 ) (822,540 )

Increase (decrease) in fund during year 257,414 617,082 246,119 (115,511 ) (702,561 )

Value of fund at end of year 2,179,678 2,796,760 3,042,879 2,927,368 2,224,807

Essex Pension Fund Annual Report & Accounts 2008-2009 7 Management Structure

Administering Authority Observers Essex County Council J.P.F. Archer (representing Employers) A. Meyrick (representing Employees/ Essex Pension Board 2008/2009 Beneficiaries) R. L. Bass B.A., F.C.I.B. (Chairman) (Essex County Council) Advisers K.D. Neale C.P.F.A. P.J. Martin F.C.A. (Deputy Chairman) (Essex A. Hardy County Council) G. Henshilwood B.Sc., F.F.A. Mrs. T.M. Chapman (Essex County Council) Chief Financial Officer W. Archibald D.L. (Essex County Council) Margaret Lee CIPFA D. M. Finch (Essex County Council) Property Solicitors T.C. Smith-Hughes B.A., A.C.I.B. (Essex County Essex County Council – Legal Services Council) Nabarro Nathanson J.P.F. Archer (E.L.G.A) AVC Provider A Meyrick (UNISON) The Equitable Life Assurance Society The Standard Life Assurance Company P.A. Challis (Essex Leaders Group) Actuaries A. Jackson (Essex Police Authority) Mercer E.C. Johnson (Essex Fire Authority) Auditors Vacancy to be determined (Southend-on-Sea Audit Commission Borough Council and Thurrock Council) Performance Monitoring Investment Steering Committee 2008/09 BNY Mellon Performance & Risk Analytics Councillors Europe Limited R. L. Bass B.A., F.C.I.B. (Chairman) Custodian W. Archibald D.L. Mrs. T.M. Chapman The Bank of New York Mellon P.J. Martin F.C.A. (Vice Chairman) Partnership Investments in Shareholder T.C. Smith-Hughes B.A., A.C.I.B. Activism D.M.Finch Governance for Owners LLP A. Jackson (substitute) Hermes Focus Asset Management Ltd Relational Investors LLC

8 Essex Pension Fund Annual Report and Accounts 2008–2009 Introduction & Overview

Fund Managers Nomura Asset Management UK Ltd Mandate: Japanese Equities (to January 2009) Alliance Bernstein Mandate: Pacific Basin (to January 2009) Mandate: Global Equities Prudential M & G Aviva Investors Global Services Ltd Mandate: Infrastructure Mandate: Property Mandate: Libor + Baillie Gifford & Co. Record Currency Management Mandate: Global Equities (to January 2009) Mandate: Currency Active Mandate: Long Term Global Growth Mandate: Currency Passive Capital International Mandate: Global Equities First State Investment Management (UK) Ltd Mandate: Global Emerging Markets Equities Goldman Sachs Asset Management Mandate: Bonds Hamilton Lane LLC Mandate: Private Equity Legal and General Investment Management Mandate: Passive Balanced Marathon Asset Management Ltd Mandate: Global Equities Martin Currie Investment Management Ltd Mandate: UK Equities (to June 2008) Mellon Capital Management Corporation Mandate: Currency Mirabaud Investment Management Ltd Mandate: UK Equities (to January 2009)

Essex Pension Fund Annual Report & Accounts 2008-2009 9 Asset Allocation Benchmark as at 31 March 2009

Private Equity 4.0 100.0 100.0

Infrastructure 2.5 100.0 100.0

Currency 3.3 50.0 50.0 100.0 Alternatives

Activism 4.0 100.0 100.0

Property 12.0 100.0 100.0

Global Equities 5.0 100.0 100.0 Bonds

Global Equities 5.5 20.0 40.0 40.0 100.0

Global Equities 4.0 100.0 100.0

Global Equities 7.0 100.0 100.0

Global Equities 7.0 100.0 100.0 Equities

Global Equities 7.0 100.0 100.0

Global Equities 7.0 100.0 100.0

6.7 7.6 Passive Balanced 4.1 4.1 31.7 25.3 19.4 19.4 13.5 100.0

9.7 7.8 6.1 4.3 2.1 4.0 3.5 3.5 3.5 2.5 4.0 4.0 5.0 28.0 62.0 84.2 100.0 100.0 100.0 100.0 100.0 15.5 15.8 12.0 22.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Pacific ex-Japan Pacific Fund Benchmark Fund UK Equities Global Equities North America Europe Japan markets Emerging Equities Total UK index linked UK Gilts UK Corps Libor+ Bonds Total Infrastructure Activism Shareholder Equity Private Property Alternatives Total The passive balanced manager monitors the fund assets against its benchmark and is required to rebalance the overall overall the rebalance to required is and benchmark its against assets fund the monitors manager balanced passive The balance mandate. adjusting assets within the passive asset allocation by

10 Essex Pension Fund Annual Report and Accounts 2008–2009 Investments 11

09. -21.0

)% in 2008/ 9 -19.9

2009

-3.8 -2.7

2008

7.2 7.6

2007

26.6 & Accounts 2008-2009 Annual Report Fund Essex Pension 26.1

2006

12.7 12.3

2005

24.3 24.3

2004

-18.4

Essex Fund % Essex Fund -18.5

2003

-1.1 -2.6

2002 -8.2

the Fund implemented a customised benchmark. 2002 the Fund

)% compared to the customised benchmark of (19. to the customised benchmark )% compared -7.2

2001 0

12.0 13.0

the Fund Manager’s performance was measured against a benchmark of the the of benchmark a against measured was performance Manager’s Fund the 2001

2000 9.8

Benchmark %*

6.9 1999

5 0 -5 10 15 20 25 30 was the CAPS median. From 2002 a customised benchmark has been used. until 2001 was the CAPSThe benchmark median. From * Annual Investment Returns Annual Investment -25 -20 -15 -10 The graph below shows the relative performance of the Essex Pension Fund. The overall return on on return overall The Fund. Pension Essex the of performance relative the shows below graph The was (21. the Fund Combined Actuarial Performance ServiceCombined Actuarial Performance comparisons with other (CAPS) median, which provides funds. During 2001/ Up to 2000/ Fund Managers are required to provide performance information to BNY Mellon Performance Performance Mellon BNY to information performance provide to required are Managers Fund performance and provide achieved of return the rate Ltd, who assess & Risk Analytics Europe the ISC.reports by that for consideration The investment strategy and performance of the Fund Managers is reported on a quarterly basis basis quarterly a on reported is Managers Fund the of performance and strategy investment The Managers submit reports and valuations The Fund (ISC). Committee Steering to the Investment and presentations its officers to make oral and meet with the Committee and for this purpose questions. answer Performance Investment Investment Strategy and Returns by Asset Class for 2008/09 The analysis set out below shows the returns by asset class:

5 0 2.0 -5 1.9 -2.3 -10 -2.8

-15

-20 -20.1 -22.7 -25.4

-25 -26.4 -29.3 -30 -29.4 Variation -0.1 -5.3 0.1 0.5 3.7 UK Overseas UK UK Index Property Equities Equities Bonds Linked Manager

Benchmark %* Essex Fund %

Performance Comparisons The table below shows the long term performance of the Fund and the variation against the benchmark.

4

2 3.5 3.0 2.2 0 1.8

-2

-4 -5.7

-6 -6.5

-8 Variation –0.8 -0.5 -0.4 3 years 5 years 10 years

Benchmark %* Essex Fund %

12 Essex Pension Fund Annual Report and Accounts 2008–2009 Investments

Manager Performance The table below shows the value and proportion of all investment managers’ portfolios together with those of the shareholder activism partnerships as at 31 March 2009. The performance of each portfolio -40 -60 -50 -30 -20 -10 compared to benchmark during 2008/09 is also shown. 10 £m % -35 -30 -25 -20 -15 -10 -5 0 5 10 150 20 -20.81.1 711 32.6 Legal & General Investment Managers 1.1 -20.7 271 12.4 Aviva Investors Global Services Ltd. -26.2 -22.8 218 10.0 Capital International -21.4 -22.5 160 7.3 Baille Gifford – LTTG -21.1 -23.2 111 5.1 Marathon Asset Management Ltd - Segregated -20.4 -22.9 146 6.7 Alliance Bernstein -21.1 -38.4 1.2 133 6.1 Goldman Sachs Asset Management -3.3 3.9 111 5.1 Pru Alpha Opps -9.8 -26.6 97 4.5 First State Investments (UK) Ltd -10.8 35 1.6 Marathon Asset Management – Pooled**

22 1.0 Hermes European Focus Fund -31.4 -50.9 2 0.1 Hermes UK Focus Fund -29.3 2.4 -26.2 -9 -0.4 Record Currency Management

14 0.6 Mellon Capital Management -27.9 -57.2 -30.3 13 0.6 Governance for Owners -42.4 12 0.5 Hermes US Fund -14.2 -15.4 -44.6 10 0.5 Hermes UK Smaller -30.4 12 0.5 Nissay Hermes Japan -8.9 -6.2 -19.9 2,182 100 Fund -21.0 Benchmark % Essex Fund %

* In addition to the investments shown above, the Fund also invested £113m (5.2%) in private equity partnerships, this includes the Infracapital Libor +. ** Marathon Asset Management commenced there pooled mandate February 2009.

Essex Pension Fund Annual Report & Accounts 2008-2009 13 Portfolio Distribution at 31 March

Equities 60

50 57.4

tfolio 40 UK Equities 41.5 41.1 39.8 39.0

30 37.5 36.7 Overseas Equities 34.9 otal Por otal 32.0 T 29.9 27.9 20 27.4 25.2 % of 10 12.2 0 2003 2004 2005 2006 2007 2008 2009 Bonds 12 11.5

10 11.4 11.1 10.6 9.8 9.6 9.2 tfolio 8 UK Fixed Interest 7.9 7.4

6 6.9 Overseas Fixed Interest otal Por otal 6.0 T 5.3 4 5.2 Index-Linked/Other 4.8 % of 2 2.5 2.4 0.6 2.0 0.2 0.2 0 1.6 2003 2004 2005 2006 2007 2008 2009 Other 15

12 12.7 11.9 tfolio 11.8 11.6

11.0 Property 9 10.7 9.3 Cash otal Por otal

T 6

% of 3 3.7 0.4 1.9 1.5 1.7 1.7 0 1.4 2003 2004 2005 2006 2007 2008 2009

14 Essex Pension Fund Annual Report and Accounts 2008–2009 Investments

History of the Fund

2004/05 2005/06 2006/07 2007/08 2008/09 Value at 31 March (£000) 2,179,678 2,796,760 3,042,879 2,927,368 2,224,807 Number of Contributors 38,776 40,211 41,994 43,152 46,857 Contributions (£000) 136,523 156,144 170,203 190,220 211,227 Number of Pensioners 23,073 23,830 25,942 27,118 27,992 Benefits Paid (£000) 105,173 111,590 127,429 139,884 151,202

Historic Changes to the Fund

Common contribution rate Historic changes in funding level (ongoing rate) of the scheme 100 Year Rate As % of pensionable

pay 97.0

80 90.5 1998/99 152% 8.82% 88.6 84.0

1999/00 165% 9.57% 79.6 71.4 2000/01 165% 9.57% el % 60 2001/02 165% 9.57% 2002/03 171% 10.09% 40 2003/04 171% 10.09% v unding Le F 2004/05 171% 10.09% 2005/06 172% 10.15% 20 2006/07 172% 10.15% 2007/08 172% 10.15% 0 2008/09 12.70% * 12.70% 1992 1995 1998 2001 2007 2004 Valuation

* With effect from 1 April 2008 Valuation, rates were expressed as a percentage of pensionable pay.

Essex Pension Fund Annual Report & Accounts 2008-2009 15 Equity and Direct Property Holdings

Largest 10 Equity Holdings of the Fund as at 31 March 2009

Market Value at Proportion of 31 March 2009 the net assets of the fund £m (%) Petroleo Brasileiro 13.38 0.61 Amazon.Com Inc Com 11.87 0.54 Royal Dutch Shell 8.26 0.38 Atlas Copco 7.98 0.37 Roche Hldg Ag 7.46 0.34 Google Inc 6.74 0.31 Companhia Vale Do Rio Doce 6.59 0.30 Canon Inc 6.50 0.30 Lukoil 6.38 0.29 Nintendo 6.19 0.28 Total 81.35 3.72

Property Holdings as at 31 March 2009

Market Value at 31 March 2009 £m • Retail 34.6 • Offices 24.7 • Industrial/Development 23.9 • Property Unit Trusts 120.8 Total 204.0

16 Essex Pension Fund Annual Report and Accounts 2008–2009 Investments 17 £m 5.65 5.00 3.35 13.33 10.00 March 2009 31 March Market Value at Value Market Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension Victoria Road Retail Park, Wellingborough Park, Retail Road Victoria Stortford Bishops Stortford Hall Industrial Park, London 55 -57 Dean Street, Wellingborough Park, Retail Road Victoria Borehamwood Sheley Road, Metropolis 2 Esken Court, Milton Keynes Park, Campbell

Industrial Office Retail Retail Office

Dean Street, London Dean Street, Largest Direct Property Holdings: Direct Largest Statement from the Pensions Services Manager

As I mentioned in my statement last year, The newly formed Essex Pension Fund Board the new Local Government Pension Scheme held it’s inaugural meeting on 26 November came into being on 1 April 2008. All active 2008 and resolved to meet quarterly. An contributing members were transferred to the important part of the Board’s remit is to monitor new scheme with their pension rights accrued all aspects of the administration of the Local in the former scheme being fully protected. Government Pension Scheme and we will be Uncertainty still remains in some areas of the providing them with the necessary information new scheme, such as ill-health retirement, and support to enable them to fulfil that role. and Communities and Local Government (CLG) It is encouraging to see that the scheme remains has been slow to provide clarification. An Ill- popular with the number of contributing scheme health Monitoring Group has been set up at members continuing to grow rapidly as has the a national level to monitor how the new 3 tier number of pensioner and deferred members. ill-health arrangements are working in practice and we have been involved in providing data to TUPE transfers continue to impact heavily on facilitate the work of that group. our workload and the number of employers in the fund continues to grow year on year It was announced some time ago that CLG and making the administration of the scheme ever the Government Actuary’s Department (GAD) more complex. were to undertake a review of the factors used for transfers to and from other pension Looking forward, even with the introduction arrangements as well as those for transfers of the new scheme there is unlikely to be any between local authority funds. GAD has been relaxation in the pace of change. We are already slow to issue the new factors and guidance preparing for the provision of comprehensive and we have had to work with a succession membership data to GAD to feed into the new of interim guidance and short-term fixes cost sharing mechanism which is currently since the introduction of the new scheme. As being developed. In the current financial a consequence, it has been difficult for our crisis and with almost daily negative publicity software provider to update our administration surrounding the cost of public sector pensions, system and it has been a challenge to maintain it is expected that the Government will be our level of service to members and employers consulting shortly on further changes to the with manual calculations being necessary in scheme. Any consultation is expected to be wide some cases. ranging and cover the structure of the scheme, administrative arrangements and the possibility In conjunction with the Local Government of merging some local authority funds. Pensions Committee and some other administering authorities we have produced A priority for us in Pensions Services this a new full scheme guide for employees coming year will be the revamping of our which takes account of the new scheme and website to bring it up to date following the the protections carried over from the old introduction of the new scheme. scheme. 50,000 copies of the guide have been Jody Evans printed and sent to our scheme employers for Pension Services Manager distribution to all contributing members.

18 Essex Pension Fund Annual Report and Accounts 2008–2009 Pensions Services

Membership Summary 2007/08 2008/09 County Council 18,676 20,882 District/Unitary Councils 10,686 10,863 Other Employing Bodies 13,790 15,112 Total Contributors 43,152 46,857 Retired Employees 22,422 22,853 Dependants 4,696 5,140 * Deferred pensioners are former employees Total Pensioners 27,118 27,992 who have chosen not to transfer their Deferred Pensioners* 24,995 26,272 pension rights.

Key Service Standards for Scheme Members

Type of Work Maximum Actual % Actual % Turnaround Achieved Achieved Time 2007/08 2008/09 Letters answered or acknowledged (including electronic) 5 working days 92 94 Lump sum retirement payments 5 working days 96 95 Notifications to new pensioners 5 working days 96 95 Death grant benefits/payments* 3 working days 97 91 Transfers In – quotation of service credit 10 working days 87 91 Transfers Out – issue of quotation** 10 working days 91 85 Transfers Out – payment made 10 working days 91 100 Refunds of contributions 10 working days 99 95 Additional contributions – quotation 10 working days 96 95 Re employed Pensioners 15 working days 98 98

Note: Pensions Services always seek to better the maximum times quoted. Turnaround times operate from the date all necessary information is received. The key areas quoted are taken from a comprehensive list of service standards. *All the above figures continue to be affected by legislation changes to the current scheme, resulting in manual calculations pending amendments to the computerised administration system. ** Due to the introduction of the new Local Government Pension Scheme from 01/04/08, demands on requesting of transfers in prior to this new arrangement have been much higher than in previous years, thus affecting the teams turnaround times.

Essex Pension Fund Annual Report & Accounts 2008-2009 19 Scheme Details

Essex County Council administers the Essex Final Pay x 1/60 x Membership from County Council Pension Fund for its own 1st April 2008 employees, those of the 14 District/Borough/ Unitary Councils and numerous other bodies. In payment, the pension will rise each April The Fund excludes provision for teachers, in line with the increase in the Retail Prices fire-fighters and police officers, for whom Index. separate arrangements exist. Benefits are ii) Lump Sum prescribed by, and the Fund is invested in There may be an entitlement to a tax-free accordance with, the provisions of the Local lump sum, calculated using the following Government Pension Scheme (Benefits, formula: Membership and Contributions) Regulations 2007, the Local Government Pension Scheme Final Pay x 3/80 x Membership up to (Administration) Regulations 2008 and Local 31st March 2008 Government Pension Scheme (Management and Investment) of Funds Regulations 1998. (There is no automatic lump sum for The rate of employee contributions is between Membership from 1st April 2008) 5.25% and 7.5% of pensionable pay. iii) Conversion of Benefits 1. Benefits All members can exchange pension for a lump sum subject to HM Revenue and Customs limits. The Local Government Pension Scheme provides significant benefits to members 2. Ill Health Retirement and compares favourably with many private sector pension schemes. Listed below are If the membership period is 3 months or more brief details of some of the principal benefits and the member’s employment is terminated: available to members. (1) on the grounds that his/her ill-health or Benefits will normally be based on two infirmity of mind or body renders him/her factors: length of service during which permanently incapable of performing the contributions have been paid to the scheme, duties of their job, and known as “Membership”, and the salary (2) that they have a reduced likelihood of on which those contributions were paid obtaining any gainful employment before their (normally the last 12 months of service). This normal retirement age of 65. is commonly known as “Final Pay”. A pension and, where applicable, a lump i) Annual Pension sum are paid immediately. If it is considered The calculation of the annual pension is based that the member will be capable of obtaining on the following formula:- any gainful employment within 3 years, the Final Pay x 1/80 x Membership up to pension is reviewable after 18 months and, in 31st March 2008 any case, will cease after 3 years.

20 Essex Pension Fund Annual Report and Accounts 2008–2009 Pensions Services 21

for Member Member for times deferred

Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension . Death in Deferment Flitch Way, Great Notley Great Way, Flitch 747 39028 69475 If you have any queries regarding benefits benefits regarding queries any have you If Government Local the under payable Services Pensions the Scheme, Pension toManager and her staff will be pleased them. answer 01245 431912 (Telephone helpline) No: Reference Tax Pension Scheme Tax Reference: Tax Scheme Pension the as known Formerly No. Fund Registered PSTR 00328636RV PSTR 6 of 5 grant A lump sum death spouse’s/civil addition, In payable. is pension and partner’s cohabiting partner’s/nominated payable are pensions children’s dependant member’s former the on based but above, as pension. deferred times Final Final times or more months membership membership months more or . Death after Retirement . Death in Service . Deferred Benefits . Deferred Spouse’s/civil partner’s/nominated cohabiting cohabiting partner’s/nominated Spouse’s/civil pensions children’s and dependant partner’s former the on based but above, as payable are before pension. If death occurred member’s the years, ten for paid been had pension that balance will be paid as a lump sum. 5 Pay is payable, regardless of the length is payable, regardless Pay In addition, pensions are of membership. payable to surviving spouses/civil partners/ nominated cohabiting partners for life, and while under the age of 23 dependant children the on based education, full-time in still Membership and Final Pay. former employee’s A lump sum death grant of 3 A lump sum death grant 4 3 with 3 Leavers are awarded benefits calculated in the the in calculated benefits awarded are retirements, normal for as way same until deferred, being payment with but payment (Early Date Retirement Normal circumstances). certain in possible be may thepossible to transfer it may be Alternatively, another to benefits those of value equivalent are benefits Deferred scheme. pension in the each April in line with the rise increased Index. Prices Retail The benefits are calculated in the same way way same the in calculated are benefits The certain in that, except retirement normal for as increased is membership the circumstances, retirement. to compensate for premature Participating Employers of the Fund

Scheme Employers Writtle Agricultural College County, Unitary, Borough & Districts Schools (Former Grant Maintained) Essex County Council District Council Braintree District Council , The Brentwood Borough Council Ashingdon Primary School Castle Point Borough Council Chelmsford Borough Council Beauchamps School Colchester Borough Council Belfairs Community College (formerly Belfairs Epping Forest District Council High School) Harlow District Council Billericay School Maldon District Council Boswells School, The Rochford District Council Brentwood County High School Southend-on-Sea Borough Council (Unitary) Brinkley Grove Primary School Tendring District Council Bromfords School, The Thurrock Borough Council (Unitary) Broomfield Primary School Uttlesford District Council Buttsbury Infants School Buttsbury Junior School Scheduled Cathedral Primary School Anglia Ruskin University Cecil Jones High School Colchester Borough Homes Essex Fire Authority Chase Lane Primary School Essex Police Authority Chelmer Valley High School Essex Probation Committee Chelmsford High School for Girls The Gateway Academy Chetwood Primary School Clacton County High School Incorporated Colleges Colbayns High School for Girls Colchester Royal Grammar School Collingwood Primary School Colchester Sixth Form College Colne Community School, The Epping Forest College Coppins Green Primary School Cornelius Vermuyden School, The Palmers Sixth Form College Davenant Foundation School, The South East Essex College of Arts & Technology Deanes School, The South East Essex Sixth Form College Dunmow St Mary’s Primary School Thurrock and Basildon College Earls Colne Primary School

22 Essex Pension Fund Annual Report and Accounts 2008–2009 Pensions Services 23 Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension (formerly The Hedley Walter High School) Walter Hedley The (formerly Kingswood Junior School Kingswood Junior Primary School Lawford Infants School Leverton Junior School Leverton High School Manningtree Mersea Island Primary School PrimaryMillfield School Milton Hall Primary School Primary School Newlands Spring School Grammar Newport Free North Primary School Crescent Northlands Junior School Northwick Primary Nursery and School Park Our Lady Immaculate Primary School The School and College, Philip Morant Primary School Plumberow The , Primary School Avenue Prince R A Butler Infants School R A Butler Junior School Primary School Robert Drake Primary School Rochford Primary School Rodings Primary School Rolph High School Walden Saffron Sandon School Technology & Science of College Hall Sawyers School Sir Charles Lucas PrimarySouth Benfleet School Southend High School (Boys) Southend High School (Girls) Catholic Primary School Albans St Peverel) Junior School (Hatfield Andrews St Primary School (NorthWeald) Andrews St Primary School (Weeley) Andrews St Benedicts College St High School Bernards St Dunmow Infants School) Dunmow Great Totham School Totham Great Primary Wood Grove Hadleigh Infants School Hadleigh Junior School Harwich School School Hassenbrook School Helena Romanes Heybridge Primary School School Hockerill Anglo-European Hockley Primary School Primary School Holland Haven Primary School Holland Park Primary School Holy Cross Horndon-on-the-Hill Primary School Infants School Howbridge Saints CofE Primary School Hutton All School Hylands Jotmans Hall Primary School Primary School Katherines Primary School Kenningtons The , School Grammar VI King Edward School King Harold King John School Kingswood Infants School Eastwood High School Eastwood Primary School PrimaryElmstead Market School Elmwood Primary School The School, Endeavour Engaines Primary School The School, Fitzwimarc The School, Furtherwick Park Gable Hall School School Gilberd The School, Grays Clacton Junior School Great (formerly School Primary Dunmow Great St Christopher School, The Rickstones Academy (previously The St Clare’s Primary School Rickstones School) St Clere’s School St Helen’s Infant School Town & Parish Councils St Helen’s Junior School Ashingdon Parish Council St Helena School Barnston Parish Council St John Fisher Primary School Blackmore Parish Council St Katherine’s Primary School Billericay Town Council St Marks West Essex Catholic Schools Brightlingsea Town Council St Martin’s School Broomfield Parish Council St Mary’s C of E Primary School Buckhurst Hill Parish Council St Peters College (formerly Rainsford High Burnham On Crounch Town Council School) Town Council St Thomas More High School Chigwell Parish Council St Thomas More RC Primary School Coggeshall Parish Council Stanway School Danbury Parish Council Takeley Primary School Earls Colne Parish Council Tendring Technology College & VI Form Epping Town Council Thaxted Primary School Feering Parish Council Thomas Willingale Primary School Frinton & Walton Town Council Galleywood Parish Council Upshire Primary School Great Baddow Parish Council Ursuline Convent School Great Burstead & South Green Parish Council Waltham Holy Cross Infants School Great Dunmow Town Council Walton Primary School Great Notley Parish Council Great Wakering Parish Council Westcliff High School for Boys Halstead Town Council Westcliff High School for Girls Harwich Town Council Westerings Primary School Hawkwell Parish Council William De Ferrers School Heybridge Parish Council William Edwards School Hullbridge Parish Council Woodville Primary School Ingatestone and Fryerning Parish Council Wyburns Primary School Leigh on Sea Town Council Little Yeldham Parish Council Academy Schools (wef Sept 08) Loughton Town Council (previously The Maldon Town Council Greensward School) Marks Tey Parish Council (previously The John Myland Parish Council Bramston School) North Weald (Bassett) Parish Council

24 Essex Pension Fund Annual Report and Accounts 2008–2009 Pensions Services 25 Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension Advice Bureau Commission for Social Care Inspection Inspection Care Social for Commission Association Ltd) Trust) & Halstead Care Braintree Witham, Housing) Harwich Connexions Transport Co-op Ltd Transport Harwich Connexions Day Nursery Peverel Hatfield Impulse Leisure Ltd Technology Itec Learning Walden House, Saffron VI Alms King Edward Open College Network Eastern Region Homes Phoenix Group Equality Foundation Race Services, Harlow Rainbow Southend Ltd Renaissance Community Council of Essex Rural Services Voluntary Southend Association of Citizens Guild of Help & Southend on Sea Aid Women’s Southend Trust The Inclusion Thames GatewayEssex Partnership South Institute Standards Trading Management Ltd Park Wivenhoe Admitted Bodies (Colchester) Limited Alphaprint Chelmer Housing Partnership formerly ( Commission Quality Care ExDRA Council Social Care General Ltd Renaissance Harlow Housing Warden Home Ltd (formerly (formerly Trust Care Primary Essex Mid Plume (formerly Ltd group Housing Moat Housing Association Ltd Rochford Institute for Excellence Social Care SLM Ltd Community Leisure Thurrock of Essex University Ardleigh Reservoir Committee Reservoir Ardleigh Refuge Women’s Basildon Aid Womans Braintree Trust Leisure Brentwood The Agency, Validating Cambridge Access Advice Bureau Citizen’s Castle Point Volunteering Agency for Chelmsford Advice Bureau Citizens Chelmsford Ltd Transport Community Chelmsford Services Voluntary Council for Chelmsford Aid Womans Tendring Colchester and Board Tourist East of England Company Water Essex & Suffolk Councils Essex Association of Local Essex County Scout Council Tribunals Essex NorthValuation & South Ltd Trust Hamilton Lodge Trust & District SportsHarlow Rights & Advice Welfare Harlow Aid Women’s Harlow Small Admitted Bodies Ongar Parish Council Ongar Parish Council Town Rayleigh Council Parish Runwell Council Town Walden Saffron Council Sandon Parish Council Sible Hedingham Parish Parish Council South Hanningfield Council Town Ferrers Woodham South Parish Council Springfield Council Osyth Parish St Parish Council Mountfitchet Stansted Council Parish Stebbing Council Parish Tiptree Council Town Abbey Waltham Council Town Mersea West Council Town Witham Council Parish Writtle University of Essex Student Union Thurrock Thames Gateway Development Worthing Homes Ltd Corporation Vehicle Lease & Service Ltd Admission Bodies Vertex Ashlyn Healthcare Ltd Westminster Drug Project Ltd Braintree District Leisure Community Winifred Healthcare Ltd Association Ltd Women’s Royal Voluntary Service (Essex CC) Central Parking System of UK Ltd WRVS Food Services Ltd Cleanaway Ltd Colchester Borough Homes Bodies with no current contributors Connaught Partnership Ltd Age Conern Essex Corporate Document Services Ltd Alfred McAlpine Contruction Ltd Dovercourt Healthcare Ltd Anglian Water Authority Elmy Landscapes Ltd Association of Public Service Finance Officers Essex Joint Branch Board of the Police Basildon College Federation of Essex Basildon Community Housing Association Europa FM Basildon DVC (Commission for New Town) Goldenley Healthcare Ltd Blackwater Housing Association Greenfields Community Housing Ltd Braintree, Dunmow & Witham Joint Sanitary Greenways Healthcare Ltd Committee Harwich Connexions Transport Co-operative Ltd Bramston Sports Centre Harlow Renaissance Ltd Brentwood High House Hostel Head Office Cleaning Services Ltd Brightlingsea Harbour Committee HQ Theatres Ltd Business Link (Essex) Ltd Kier Harlow Ltd Centre for Education & Training Health Visitors Longfield Healthcare Ltd Central Council for Education & Training in May Gurney (Construction) Ltd Social Work Okeley Healthcare Ltd Chappel Parish Council Orchestras Live Chelmsford Environment Partnership P H Jones Ltd Clacton & Harwich Education Action Zone Pinnacle PSG (formerly Wates Facilities Colchester MIND Management Ltd) Colchester Transport Ltd Rushcliffe Care Colchester Youth Arts Partnership Saffron Healthcare Ltd Crouch Harbour Authority Serco Solutions East Anglian Regional Examination Board South Essex Homes East Basildon Education Action Zone St Georges Community Housing Ltd Eastern Orchestral Board Sweyne Healthcare Ltd Eastwood Infants School

26 Essex Pension Fund Annual Report and Accounts 2008–2009 Pensions Services 27 Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension Zone Visitors Health South Essex Local Valuation Panel Valuation South Essex Local Museum Society Walden Saffron College Training Walden Saffron Almshouses Walden Saffron Centre Technology South East Essex VirtualAction Education South East England Services Voluntary Southend Association of Southend Education Action Zone Ltd Transport Southend Council Parish Stanway Company Water Hundred Tendring Utilities Ltd Water Thames Ltd Windows Thameside College Thurrock Council Parish Tollesbury GM School Torrells Theatre Towngate Vol Trans & Midwifery Nursing, of Board National Welsh & ArtTheatre Centre Westcliff Management Committee Windyridge Council Town Wivenhoe

Women’s Homes Women’s Employees Scotland Visitors, Health Essex Magistrates CourtsEssex Magistrates Committee Essex Physically Handicapped Association Authority Essex River Company Water Essex Exwaste Ltd Service Units Family Transport Passenger of Public Federation Infants School Grove Junior School Grove Social Club Council Employees Harlow Agency Co-op Development Harlow Corporation Development Harlow ITEC Harlow Union Centre Trade Harlow Services Voluntary Council for Harlow Trust Theatre Harlow Harwich Port Health Authority HBS Business Services Ltd Group School VI King Edward Council Lambourne Parish & Midwifery , Nursing of Board National Northwick Infants School Park Northwick Junior School Park Work National Institute for Social Nursing & Midwifery Council Trust Theatre Palace Council Services Social Personal Committee Essex Joint Crematorium Eastwood Junior School Eastwood Junior Ltd (Ardleigh) Elm Park of Nursing & Midwifery Board English National & Business PartnershipEssex Careers Blind Essex County Association for the Essex Economic Partnerships Congregational of Federation Essex Statement by Consulting Actuary 2007 Actuarial Valuation

An actuarial valuation of the Essex Pension In practice, each individual employer’s position Fund was carried out as at 31 March 2007 to is assessed separately and the contributions determine the contribution rates with effect required are set out in our report dated 31 from 1 April 2008 to 31 March 2011. The March 2008. For those employers in deficit results of the valuation are contained in our at the valuation date, the deficit recovery report dated 31 March 2008. The valuation contributions were certified as additional annual allowed for the new look LGPS benefit structure payments (increasing in line with the assumed which was introduced from 1 April 2008. rate of pay increase) and not as an additional percentage of pay contribution. In addition On the basis of the assumptions adopted, to the contribution rates shown, payments to the valuation revealed that the value of the cover additional liabilities arising from early Fund’s assets represented 79.6% of the retirements (other than ill-health retirements) Funding Target at the valuation date. The will be made to the Fund by the employers. valuation also showed that a common rate of contribution of 12.7% of pensionable pay per The funding plan adopted in assessing the annum was required from employers. The contributions for each individual employer common rate is calculated as being sufficient, is in accordance with the Funding Strategy together with contributions paid by members, Statement (FSS). Different approaches to meet all liabilities arising in respect of adopted in implementing contribution service after the valuation date. increases and deficit recovery periods are as determined through the FSS consultation Adopting the same method and assumptions process. as used for assessing the Funding Target the deficit would be eliminated by an average The valuation was carried out using the additional contribution rate of 7.0% of projected unit actuarial method and the main pensionable pay for 20 years. This would actuarial assumptions used for assessing the imply an average employer contribution rate funding target and the common contribution of 19.7% of pensionable pay in total. rate were as follows:

For past service liabilities For future service liabilities Rate of return on investments: - pre retirement 6.9% per annum 6.5% per annum -post retirement 5.4% per annum 6.5% per annum Rate of pay increases: 4.6% per annum 4.25% per annum Rate of increases in pensions in payment (in excess of Guaranteed Minimum Pension): 3.1% per annum 2.75% per annum

28 Essex Pension Fund Annual Report and Accounts 2008–2009 Scheme Actuary

The assets were assessed at market value and the value at 31 March 2007 was £3,043 million. Full details of the assumptions adopted for the valuation are set out in the actuarial valuation report. The valuation results as summarised above are based on the financial position and market levels at the valuation date, 31 March 2007. As such the results do not make allowance for the significant market falls which have occurred during the financial year to 31 March 2008. The implications of this and the current volatility in the markets will continue to be monitored. The next triennial actuarial valuation of the Fund is due as at 31 March 2010. Based on the results of this valuation, the contribution rates payable by the individual employers will be revised with effect from 1 April 2011.

C R Hull Fellow of the Institute of Actuaries Mercer Limited August 2008

Marks Hall Estate

Essex Pension Fund Annual Report & Accounts 2008-2009 29 Total Contribution Total Contribution Total Contribution Rate 2008/09 Rate 2009/10 Rate 2010/11 % % %

Essex County Council (excluding schools)12 .9 plus £17,352,29912 .9 plus £18,150,505 12.9 plus £18,985,428 Schools - Essex CC Area 19.9 19.9 19.9 Basildon District Council 12.7 plus £2,384,290 12.7 plus £2,493,967 12.7 plus £2,608,690 Braintree District Council 13.0 plus £1,475,379 13.0 plus £1,543,246 13.0 plus £1,614,236 Brentwood Borough Council 11.2 plus £1,271,106 12.0 plus £1,280,512 12.8 plus £1,289,917 Castle Point Borough Council 13.1 plus £705,699 13.1 plus £738,161 13.1 plus £772,117 Chelmsford Borough Council 11.0 plus £1,842,933 11.8 plus £1,697,834 12.6 plus £1,552,736 Colchester Borough Council 11.9 plus £2,074,462 11.9 plus £2,169,887 11.9 plus £2,269,702 Epping Forest District Council 11.1 plus £1,795,590 12.1 plus £1,769,416 13.1 plus £1,743,241 Harlow District Council 12.5 plus £2,587,266 12.5 plus £2,706,280 12.5 plus £2,830,769 Maldon District Council 10.0 plus £656,972 10.8 plus £677,193 11.5 plus £697,414 Rochford District Council 12.4 plus £688,713 12.4 plus £720,394 12.4 plus £753,532 Southend on Sea Borough Council (excluding schools) 12.9 plus £3,465,225 12.9 plus £3,624,625 12.9 plus £3,791,358 Schools - Southend BC Area 20.6 20.6 20.6 Tendring District Council 13.7 plus £1,416,276 13.7 plus £1,481,425 13.7 plus £1,549,570 Thurrock Borough Council (excluding schools) 11.0 plus £3,765,833 11.8 plus £3,892,339 12.6 plus £4,018,846 Schools - Thurrock BC Area 19.2 20.1 21.0 Uttlesford District Council 10.8 plus £421,897 11.7 plus £421,045 12.5 plus £420,192 Essex Police Authority 11.1 plus £1,514,631 11.1 plus £1,584,304 11.1 plus £1,657,182 Essex Probation Committee 11.7 plus £586,076 11.7 plus £613,035 11.7 plus £641,235 University of Essex 15.2 plus £1,036,250 16.3 plus £1,246,986 17.4 plus £1,457,723 Essex Fire Authority 11.0 plus £415,263 11.6 plus £447,931 12.2 plus £480,598 Anglia Ruskin University 10.0 plus £1,019,014 10.8 plus £1,083,500 11.5 plus £1,147,986 Colchester Borough Homes Ltd 13.7 plus £2,709 13.7 plus £2,834 13.7 plus £2,964 Colchester Institute 9.5 plus £307,347 10.1 plus £309,106 10.8 plus £310,866 Chelmsford College 12.1 plus £78,058 13.2 plus £70,040 14.2 plus £62,021 Braintree College 9.7 plus £64,083 10.5 plus £77,004 11.3 plus £89,924 Epping Forest College 12.7 plus £99,531 12.7 plus £104,109 12.7 plus £108,898 Colchester Sixth Form College 12.0 plus £34,724 13.1 plus £35,900 14.1 plus £37,075 Palmers College 10.8 plus £51,696 12.1 plus £54,811 13.4 plus £57,926

30 Essex Pension Fund Annual Report and Accounts 2008–2009 Scheme Actuary

Total Contribution Total Contribution Total Contribution Rate 2008/09 Rate 2009/10 Rate 2010/11 % % %

SEEVIC College 11.4 plus £38,307 11.4 plus £40,069 11.4 plus £41,912 South East Essex College of Arts & Technology 8.5 plus £78,506 9.6 plus £89,848 10.7 plus £101,189 Writtle College 11.6 plus £152,103 11.6 plus £159,100 11.6 plus £166,418 Harlow College 11.6 plus £106,031 12.5 plus £107,698 13.5 plus £109,366 Basildon & Thurrock College 13.3 plus £163,522 13.3 plus £171,044 13.3 plus £178,912 Worthing Homes Ltd 12.7 plus £95,203 12.7 plus £99,582 12.7 plus £104,163 Thurrock Community Leisure Ltd 11.6 plus £30,205 11.6 plus £31,594 11.6 plus £33,047 May Gurney (Construction) Ltd 15.0 15.0 15.0 Central Parking System of the UK Ltd (Southend) 0.0 0.0 0.0 General Social Care Council 10.7 plus £202,371 10.7 plus £211,680 10.7 plus £221,417 Social Care Institute for Excellence 10.6 plus £25,433 10.6 plus £26,603 10.6 plus £27,827 Serco Solutions 9.1 9.1 9.1 Chelmer Housing Partnership 12.7 plus £239,029 12.7 plus £250,025 12.7 plus £261,526 Commission for Social Care Inspection 18.4 plus £51,217 18.4 plus £53,573 18.4 plus £56,037 Elmy Landscapes Ltd 13.3 13.3 13.3 Women’s Royal Voluntary Service 17.2 plus £11,236 17.2 plus £11,752 17.2 plus £12,293 DC Leisure Management Ltd 10.7 plus £61,416 10.7 plus £64,242 10.7 plus £67,197 Mid Essex Primary Care Trust 7.2 7.2 7.2 Cleanaway Ltd 10.0 10.0 10.0 WRVS Food Services Ltd 0.0 0.0 0.0 Warden Housing Association Ltd 20.0 20.0 20.0 Wates Group Ltd 11.2 11.2 11.2 ExDRA 10.3 10.3 10.3 Thurrock Thames Gateway Development Corporation 12.6 plus £95,507 12.6 plus £99,900 12.6 plus £104,495 Vertex 11.1 11.1 11.1 United Utilities 12.1 12.1 12.1 Ashlyn Healthcare Ltd 15.0 15.0 15.0 Goldenley Healthcare Ltd 15.0 15.0 15.0 Greenways Healthcare Ltd 15.0 15.0 15.0 Dovercourt Healthcare Ltd 15.0 15.0 15.0

Essex Pension Fund Annual Report & Accounts 2008-2009 31 Total Contribution Total Contribution Total Contribution Rate 2008/09 Rate 2009/10 Rate 2010/11 % % %

Longfield Healthcare Ltd 15.0 15.0 15.0 Okeley Healthcare Ltd 15.0 15.0 15.0 Sherrell Healthcare Ltd 15.0 15.0 15.0 Saffron Healthcare Ltd 15.0 15.0 15.0 Sweyne Healthcare Ltd 15.0 15.0 15.0 Winifred Healthcare Ltd 15.0 15.0 15.0 South Essex Homes Ltd 13.6 13.6 13.6 SLM 9.2 9.2 9.2 Rushcliffe Care 14.3 14.3 14.3 Alphaprint Ltd 14.9 14.9 14.9 Braintree Womens Aid 16.6 16.6 16.6 H Q Theatres Ltd 10.4 10.4 10.4 The Gateway Academy 12.9 12.9 12.9 Kier Harlow Ltd 14.5 14.5 14.5 Moat Housing Group 15.5 plus £25,438 15.5 plus £26,608 15.5 plus £27,832 St Georges Community Housing 13.7 13.7 13.7 Small Admitted Bodies 11.2 plus £533,523 11.7 plus £561,350 12.3 plus £589,178 Town and Parish councils 12.9 plus £123,858 14.1 plus £125,156 15.4 plus £126,455 Greenfields Community Housing 12.7 12.7 12.7 Rochford Housing Association Ltd 17.4 plus £125,512 17.4 plus £131,286 17.4 plus £137,325 Orchestras Live 9.0 9.0 9.0 Connaught Partnership Ltd tbc tbc tbc Westminster Drugs Project tbc tbc tbc CCETSW tbc tbc tbc

32 Essex Pension Fund Annual Report and Accounts 2008–2009 Mersea Island Beach Huts Annual Statement of Accounts 33

Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension Chief Financial Officer’s Certificate Chief Financial Officer’s I certify of Accounts that the Statement in has been prepared on pages 34 to 44 presents and practices proper with accordance Essex the of transactions financial the fairly March ended 31 during the year Fund Pension that at Fund the of position financial and 2009 other thandate of its assets and liabilities, after benefits and pensions pay to liabilities end. the year Lee Margaret Chief Financial Officer

Selected suitable accounting policies andSelected then applied them consistently; were that estimates and judgements Made and prudent; reasonable Local on Practice of Code the with Complied Authority Accounting; which were records accounting proper Kept up to date; steps for the prevention reasonable Taken other and fraud of detection and irregularities. To make arrangements for the proper proper the for arrangements make To and affairs financial its of administration the has officers its of one that secure to of for the administration responsibility is officer that authority this In affairs. those the Chief Financial Officer; economic, to secure manage its affairs To andresources use of efficient and effective its assets; safeguard the statement of accounts. approve To

• • • • • In preparing this statement of accounts, the the accounts, of statement this preparing In Chief Financial Officer has: • • Responsibilities The Chief Financial Officer’s for theresponsible The Chief Financial Officer is accounts of statement Fund’s the of preparation set out in practices with proper in accordance and Finance Public of Institute Chartered the Local on Practice of Code (CIPFA) Accountancy Authority Accounting in the UK. Statement Statement of Accounts • The Authority’s Responsibilities The Authority’s : required The authority is Responsibilities Responsibilities for the Fund Account

2007/08 2008/09 £000 £000 Notes

Contributions and Benefits Contributions receivable 3 Employees’ contributions (41,374) (47,271) Employers’ contributions (148,846) (190,220) (163,956) (211,227 ) Transfers from other schemes 4 (19,548) (22,358 ) Other income (198) (192 ) (209,966) (233,777 ) Benefits payable 5 Pensions 107,856 115,672 Commutation of pensions & lump sums 30,323 32,020 Lump sum death benefits 1,705 139,884 3,510 151,202 Payments to and on account of leavers Refunds of contributions 7 6 State Scheme Premiums 3 6 Transfers to other schemes 6 14,499 14,509 13,701 13,713 Administration expenses 7 2,267 1,812 156,660 166,727 Net additions from dealings with members (53,306) (67,050 )

Investments Returns on Investments Investment income 8 (69,130) (69,956 ) Change in market value of investments 9 220,614 822,540 Taxation 4,006 3,340 Investment management expenses 11 13,327 13,687 Net returns on investments 168,817 769,611

Net (increase)/decrease in the fund during the year 115,511 702,561

Net assets of the scheme at 1 April (3,042,879) (2,927,368 )

Net assets as at 31 March (2,927,368) (2,224,807 )

34 Essex Pension Fund Annual Report and Accounts 2008–2009 Annual Statement of Accounts

Net Asset Statement

31 March 31 March 2008 2009 Notes Restated £000 £000

Investments 9 Investment assets Fixed interest securities 209,489 149,665 Equities 1,692,485 1,348,654 Index-linked securities 157,128 72,068 Unit trusts 187,194 120,822 Managed funds 435,523 325,981 Derivative Contracts 701,705 655,683 Property 119,995 83,165 Cash/deposits 122,244 103,882 Other investments 16,529 3,642,292 15,479 2,875,399

Investment liabilities Derivative Contracts (745,781) (689,595) Other Investments (5,340) (751,121 ) (4,003) (693,598 )

2,891,171 2,181,801

Current assets 12 Cash invested with the County Council 23,888 14,413 Debtors and payments in advance 16,302 32,151

Current liabilities Creditors and receipts in advance (3,993 ) (3,558 )

Net assets of the scheme as at 31 March 2,927,368 2,224,807

Figures for 31 March 2008 have been restated in line with two changes required by the Statement of Recommended Practice (SORP). Firstly LGPS pension funds are no longer required to disclose the full economic exposure of futures contracts in the Net Asset Statement. These figures had been included within totals for fixed interest securities and equities. In turn these amounts were offset by cash backing futures which had been included in the cash/ deposit total. Details of the economic exposure to futures are now included within Note 9. Secondly, the SORP now requires investments to be categorised as either Assets or Liabilities and to separately disclose derivative contracts.

Essex Pension Fund Annual Report & Accounts 2008-2009 35 Notes to the Accounts

1. Basis of Preparation Investments • In the majority of cases, equity investments The financial statements have been prepared are valued at the last traded price recorded in accordance with the requirements of on the Stock Exchange Electronic Trading the Local Government Pension Scheme Service or bid market price at 31 March 2009. Regulations 1997 (as amended), the Code of Practice on Local Authority Accounting issued • For private equity limited partnerships, by CIPFA and with the guidelines set out in the there is usually a time delay in receiving Statement of Recommended Practice (SORP): information from the private equity fund ‘Financial Reports of Pension Schemes’ managers. The valuations shown in the net (revised May 2007). asset statement for these investments are the latest valuations provided to the County The financial statements summarise the Council. Where available, valuations at 31 transactions of the scheme and the net assets March 2009 have been used, however in of the Fund. They do not take account of some cases the latest valuations are at 31 obligations to pay pensions and benefits which December 2008. In these instances the Fund fall due after the financial year. The actuarial amends the 31 December 2008 valuation for position of the scheme is dealt with in the payments made to and payments received report of the consulting actuary on pages 28 from, the private equity limited partnerships to 32 and these statements should be read in in the period 1 January 2009 to 31 March conjunction with them. 2009. The valuations are compiled in Independent investment managers have accordance with the guidelines issued by been appointed to manage the investments the British Venture Capital Association or an of the Pension Fund. The Fund also invests equivalent body. in private equity and shareholder activism • Unit trusts and managed funds are valued through the use of limited partnerships. The at bid prices provided by the relevant fund Investment Steering Committee (ISC) oversees managers, which reflect the market value of the management of these investments and the underlying investments. meets regularly with the investment managers to monitor their performance against agreed • The value of fixed interest investments in benchmarks. The ISC in turn reports to the the Fund’s investment portfolio excludes Essex Pension Fund Board. interest earned but not paid over at the Fund year-end, which is included separately within 2. Accounting Policies accrued investment income and disclosed within note 9. Accounting Convention • Futures are valued at the closing market price • The financial statements have been published by the relevant futures exchange prepared on an accruals basis except for eg: LIFFE – London International Financial transfers to and from the scheme which are Futures Income. accounted for on a cash basis.

36 Essex Pension Fund Annual Report and Accounts 2008–2009 Annual Statement of Accounts 3737 this totalled totalled this 09 m). 047m). . 08 £2 option is exercised. Annual Report & Accounts 2008-2009 Annual Report ment. Where a member can chooseWhere ment. 491m (2007/ . 1 relate at rates as specified in the rates in the as specified at rates relate Additional certificate. adjustments and accounted are employers from contributions for when received. receive retirees Fund, the of rules the Under to addition in grant retirement sum lump a retirement sum Lump pension. annual their of date the from for accounted are grants retire Other benefits are accounted for on the date date the on for accounted are benefits Other or on death. the Fund the member leaves for accounted normally are values Transfer only not since basis payment/receipts a on past apply to several do they frequently values transfer of case the in but, years, at the year- due, information is not available However, accrual. an make to which on end agreed been has value transfer a where has payment the but year-end the to prior accrued. been has this made, been not investment and Administration onfor accounted are expenses management recognised are Expenses basis. accruals an A proportion of VAT. net of any recoverable salaries has been charged officers’ relevant on spent time of basis the on Fund the to pension and matters related investment In 2008/ administration. £ whether to take a greater retirement grant in grant retirement whether to take a greater pension these lump sums for reduced return from accounted for on an accruals basis are the date that the Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension

Benefits payable • • other schemes to/from Transfers • and other expenses Administrative • Transactions in foreign currencies are taken are currencies in foreign Transactions of exchange into account at the ruling rate the In transaction. the of time the at recorded are balances statements financial 2009. ruling on 31 March at rates employees Normal contributions, both from accounted are employers, and from they which to month payroll the in for Acquisition costs are included in the the in included are costs Acquisition cost of investments. purchase account into taken is income Investment The change in market value of investments The change in market value and comprises all increases during the year held investments of value market in decreases including profits at any time during the year, on sales of investments and losses realised changes in market value. and unrealised Income from fixed interest and index linked interest fixed Income from securities, cash and short-term deposits is accounted for on an accruals basis. is accounted other investments Income from for on an accruals basis. where dividends have been declared at been declared dividends have where Investment year. the end of the financial tax whereincome also includes withholding The amount of this cannot be recovered. withholding tax is disclosed as irrecoverable fund line item on the face of the a separate account. Direct property investments have been valued, been valued, have propertyDirect investments 2009, by at 31 March at open market value, CharteredJones Lang LaSalle, Surveyors.

• • Foreign Currencies Foreign • Contributions • • Investment income Investment • • • 3. Contributions Receivable Employer’s Contributions 2007/08 2008/09 £000 £000 Normal 78,491 88,097 Augmentation 20 145 Deficit 62,973 69,731 Other 7,362 5,983 Total 148,846 163,956 Other employers’ contributions relate to payments for the cost of early retirements.

Analysis of 2007/08 2008/09 Contributions Employees Employers Employees Employers £000 £000 £000 £000 County Council 14,021 46,728 16,315 51,634 District/Unitary Authorities 12,957 53,170 14,588 52,860 Other Scheduled Bodies 10,617 28,948 12,272 31,131 Other Admitted Bodies 3,779 20,000 4,096 28,331 Total 41,374 148,846 47,271 163,956

The 2008/09 employer contributions reflect the payment of £16.235m by the Department of Health for the deficit valuation arising out of the termination of Fund membership of the Central Council for the Education & Training of Social Workers. Also during 2008/09 lump sum contributions in respect of the Actuarial deficit were received from Chelmsford Borough Council (£1.419m) and SCIE (£0.265m). In 2007/08 lump sum contributions in respect of the Actuarial deficit were received from Chelmsford Borough Council (£1.843m) and Greenfields Community Housing (£6.277m).

4. Transfers in from other schemes There was no amounts receivable in respect of group transfers from other schemes during 2008/09 (none 2007/08).

38 Essex Pension Fund Annual Report and Accounts 2008–2009 Annual Statement of Accounts 39

128 193 416 £000 £000 9,638 1,812 1,491 9,944 £000 5,021 7,396 1,359 51,539 44,551 69,956 12,892 42,872 115,672 2008/09 2008/09 2008/09 Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension 35 185 £000 £000 £000 8,573 8,522 2,267 6,393 1,217 8,253 5,212 2,047 1,445 69,130 42,076 48,685 46,610 107,856 2007/08 2007/08 2007/08 . Investment Income . Investment . Administration Expenses Expenses Administration . . Transfers to other schemes Transfers . . Benefits Payable . Benefits

County Council District/Unitary Authorities and Processing Administration Actuarial Fees Fees and other Professional Legal paid to employees Pensions Other Scheduled Bodies Other Admitted Bodies Total Total securities interest fixed Income from equities Dividends from index-linked securities Income from Net rent from properties from Net rent Total Interest from cash deposits from Interest Other 8 (none 2007/08). salaries officers’ relevant of proportion a represent expenses processing and administration The matters. and investment on the basis of time spent on pensions administration 7 There were no amounts receivable in respect of group transfers to other schemes during 2008/09 to other schemes transfers of group in respect no amounts receivable were There 6 5 9. Investments The value of investments held by each manager together with investments in private equity and shareholder activism partnerships on 31 March was as follows:

31 March 2008 31 March 2009 Restated £000 % £000 % Alliance Bernstein 141,160 4.9 146,265 6.7 Baillie Gifford and Co 292,169 10.1 291 0.0 Baillie Gifford - LTGG 150,647 5.2 160,342 7.3 Capital International 281,381 9.7 217,646 10.0 First State Investments (UK) Ltd 97,931 3.4 97,252 4.5 Goldman Sachs Asset Management International 135,482 4.7 132,851 6.1 Legal and General Investment Management 648,446 22.3 711,413 32.6 Marathon Asset Management Ltd 144,136 5.0 146,375 6.7 Martin Currie Investment Management Ltd 51,498 1.8 12 0.0 Mirabaud Investment Management Ltd 61,060 2.1 49 0.0 Morley Fund Management 351,381 12.1 269,596 12.4 Nomura Asset Management UK Ltd 93,950 3.3 150 0.0 Prudential M&G 6 0.0 0 0.0 Prudential M&G Alpha Opportunities 123,104 4.3 111,081 5.1 Prudential M&G Infracapital 51,724 1.8 48,186 2.2 Nissay Hermes Japanese Stewardship Fund 12,634 0.4 11,930 0.5 Hermes European Focus Fund 45,256 1.6 22,370 1.0 Hermes UK Focus Fund 38,310 1.3 1,562 0.1 Hermes UK Smaller Companies Focus Fund 12,953 0.4 10,008 0.5 Relational Hermes US Fund 13,681 0.5 11,585 0.5 Governance for Owners European Focus Fund 21,854 0.8 12,659 0.6 Record Currency Management 37,815 1.3 (9,079 ) -0.4 Mellon Capital Management 33,804 1.2 14,453 0.6 Private Equity 50,789 1.8 64,804 3.0 Total 2,891,171 100.0 2,181,801 100.0

40 Essex Pension Fund Annual Report and Accounts 2008–2009 Annual Statement of Accounts

) ) )

)

(165 2009 41 7,501 2,282 7,978 (3,838 (1,905 83,165 72,068 Value at Value 101,600 325,981 120,822 237,351 652,491 149,665 31 March (684,498 1,111,303 ) 0 0 0 0 0 0 0 0 651 Cash ment Move- April 2008. (109,375 ) ) ) ) ) ) ) ) ) (15 Value 2,295 (5,590 (6,425 Change (63,575 (29,431 in Market (105,057 (140,389 (264,551 (206,344 ) ) ) ) ) ) ) ) ) Sale (2,295 (8,100 (5,133 (67,032 (96,925 (12,476 140,389 Proceeds (371,477 (154,332 (383,544 m). ) 2 . 701 (761 9,679 3,243 91,123 62,547 18,420 08 £2 plus net 100,226 737,747 147,438 transfers Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension Purchases 0 2008 April Value 2,392 (in 2007/ Revised 119,995 119,852 156,998 209,361 435,523 187,194 667,734 at 1 1,021,551 1.9m ) ) ) 0 0 0 0 0 0 Bid 906 from (130 (128 Mid to (4,106 Change

) ) )

0 (598 £000 £000 £000 £000 £000 £000 £000 2,392 5,585 (4,742 10,944 Value at Value 701,705 119,995 119,852 157,128 435,523 187,194 671,840 209,489 Re-stated (745,781 2924,058 (3,458 ) 2,920,600 1,170,463 (960,925 ) (819,082 ) (108,724 ) 2,202,332 2,891,171 2,181,801 1,020,645 1 April 2008

the total transaction costs were £ costs were 09 the total transaction

– Futures Other Overseas PUTS UK

income - Creditors Investment Total Outstanding sales - Debtors Margin Account Margin Total Outstanding purchases income - Debtors Investment Contracts Derivative FX Debtors - Pending Contracts Derivative FX Creditors - Pending - Creditors Derivative Contracts Derivative Properties Cash Deposits

Index linked Managed & Unitised

Equities 2008/ For

any time during the year, including profits and losses realised on sales of investments since 1 realised on sales of investments losses and including profits any time during the year, The change in market value includes all increases and decreases in the market value of investments held at at held investments of value market the in decreases and increases all includes value market in change The

interest Fixed

Re-stated 31 March 2008 31 March 2009 £000 £000 Fixed interest securities UK public sector quoted 86,051 63,278 UK quoted 67,410 42,409 Overseas public sector 6,551 267 Overseas quoted 49,477 43,711

Equities UK quoted 357,251 57,807 Overseas quoted 871,132 684,967 UK Unit trusts 314,678 179,544 Overseas Unit Trusts 149,424 426,336

Index-linked securities UK public sector quoted 128,701 72,068 UK quoted 28,427 – Overseas public sector – –

Managed funds UK unquoted 228,526 171,542 Overseas unquoted 136,714 115,616 Active Currency 70,283 38,823

Derivative Contracts Derivative Assets 701,705 655,683 Derivative Liabilities (745,781) (689,595)

Property UK properties leasehold 27,390 21,950 UK properties freehold 92,605 61,215 Property unit trusts 187,194 120,822

Cash Deposits Sterling 110,225 84,485 Foreign currency 9,627 17,116 Margin account sterling 2,392 1,521 Margin account foreign currency – 760 2,879,982 2,170,325 Debtors - outstanding sales 5,585 7,978 Creditors - outstanding purchases (4,742) (3,838) Debtors - investment income 10,944 7,501 Creditors - investment income (598) (165) Total 2,891,171 2,181,801

42 Essex Pension Fund Annual Report and Accounts 2008–2009 Annual Statement of Accounts

The Fund holds the following investments in unit trusts/pooled vehicles, which are in excess of 5% of the value of the Fund:

31 March Investment Unit Trust 31 March 2008 Manager Pooled Vehicle 2009 £000 % £000 % 304,812 10.6 Legal & General UK Equity Index 179,544 8.1 128,702 4.5 Legal & General Europe (ex UK) Equity Index 139,490 6.3 12,402 0.4 Legal & General North America Index 139,221 6.3

Commitments: As at 31 March 2009, the Fund had a commitment to contribute a further £113m to existing partnership investments, including private equity (31 March 2008 £76m). It is anticipated that payments against these commitments will be made over the next 1 – 5 financial years. A breakdown of derivatives contracts is as follows:

Economic Exposure Market Value 31/03/08 31/03/09 31/03/09 £ £ £ Future Contract Type – Exchange Traded UK Govt Fixed Interest Future Contracts 30,167 32,899 523 Overseas Govt Fixed Interest Future Contracts 16,785 (40,182) (132) UK Equities (972) 125,291 2,669 Overseas Equities 999 (123,327) (4965) Cash Backing Open Futures (46.979) 5,319 Pending Foreign Exchange Sterling 701,705 652,455 Overseas Currency (745,781) (684,462) Total Derivative Contracts held at Year End (44,076 ) (33,912 ) Futures contracts are used to gain exposure to investment markets without the need to purchase underlying stocks and shares. Forward foreign exchange contracts are used to hedge against the currency risk of the Fund’s overseas investments. 10. Additional Voluntary Contributions (AVC) Investments 2007/08 2008/09 £000 £000 Value of AVC Fund at beginning of year 6,447 6,355 Employees contributions 537 646 Investment income and change in market value 42 (768) Benefits paid and transfers out (671) (787) Value of AVC Fund at end of year 6,355 5,446

The AVC providers to the Fund are The Equitable Life Assurance Society and Standard Life. The assets of these investments are held separately from the Fund. The AVC providers secure additional benefits on a money purchase basis for those members electing to pay additional voluntary contributions. Members participating in these arrangements each receive an annual statement confirming the amounts held in their account and the movements in the year.

Essex Pension Fund Annual Report & Accounts 2008-2009 43 The Fund relies on individual contributors to check that deductions made on their behalf are accurately reflected in the statements provided by the AVC providers. A summary of the information provided by Equitable Life and Standard Life to the Fund, is shown in the table above. 11. Investment Management Expenses 2007/08 2008/09 £000 £000 Administration, Management and Custody 13,016 13,266 Performance Measurement Services 56 89 Other Advisory Fees 255 332 Total 13,327 13,687

12. Current Assets and Liabilities

31 March 31 March 2008 2009 £000 £000 Currents Assets Cash with County Council 23,888 14,413 Debtors and payments in advance Contributions due 16,302 32,151

Current Liabilities Creditors and receipts in advance Benefits due (1,875) (1,968) Investment management expenses (2,118) (1,590) Total 36,197 43,006

13. Taxation 14. Related Party Transactions The Fund is exempt from UK income tax on Under FRS 8 ‘Related Party Disclosures’ it interest and from capital gains tax on the is a requirement that material transactions profits resulting from the sale of investments. with related parties, not disclosed elsewhere, The Fund is also exempt from United States should be included in a note to the financial withholding tax on dividends on investments statements. During the year, none of the and recovers withholding tax deducted in Investment Steering Committee Members some other countries. or Senior Officers have undertaken any material transactions with the Essex County As Essex County Council is the administering Council Pension Fund. There were no material authority for the Fund, VAT input tax is contributions due from the employer bodies at recoverable on all Fund activities including the end of the year that remained outstanding expenditure on investment and property after the due date for payment. expenses.

44 Essex Pension Fund Annual Report and Accounts 2008–2009 Annual Statement of Accounts 45 )(e) )(e) 1

Essex Pension Fund Annual Report & Accounts 2008-2009 Annual Report Fund Essex Pension relevant legal and regulatory requirements requirements regulatory and legal relevant on Auditing (UK Standards and International and Ireland). I reportto whether my opinion as to you in fairly, present accounts fund pension the regulatory and legal relevant with accordance on and the Code of Practice requirements Authority Accounting in the United Local Kingdom 2008, the financial transactions and year the during fund pension the of fund’s the amount and disposition of the liabilitiesassets and liabilities, other than after theto pay pensions and other benefits you to report also I year. scheme the of end which information the opinion, my in whether, comprises the commentaryon the financial Fund Pension the within included performance pension the with consistent is Report, Annual the comprises information That accounts. fund Financial Summary. compliance governance the whether review I Fund Pension the in published statement with compliance reflects Report Annual 34( of Regulation the requirements Scheme Pension Government Local the of related and 2008 Regulations (Administration) the meet not does it if report I guidance. of Department the by specified requirements the if or Government Local and Communities with inconsistent or misleading is statement audit my from of aware am I information other required not am I statements. financial the of whether I considered, nor have to consider, risks all covers statement governance the to form an Neither am I required and controls. Authority’s the of effectiveness the on opinion or its risk procedures governance corporate procedures and control

Independent auditor’s report to the Members Independent auditor’s Council of Essex County for accounts fund pension the audited have I pension The 2009. ended 31 March the year Account, fund accounts comprise the Fund and the related the Net Assets Statement been have accounts fund pension The notes. outset policies accounting the under prepared of Accounting Policies. in the Statement of members the to solely made is report This Part with accordance in Council County Essex II Act 1998 and for no of the Audit Commission of 49 other purpose, as set out in paragraph Auditors of Responsibilities of Statement the the Audit by and of Audited Bodies prepared Commission. of the Chief responsibilities Respective auditor and Officer Financial responsible is Officer Financial Chief The in the pension fund accounts, for preparing regulatory and legal relevant with accordance on and the Code of Practice requirements Authority Accounting in the United Local fund pension this preparing In Kingdom 2008. is Officer Financial Responsible the accounts, for: responsible and policies accounting suitable selecting • then applying them consistently; were that estimates and judgments making • and prudent; reasonable which records accounting proper keeping • up to date; were prevention the for steps reasonable taking • and other irregularities. and detection of fraud is to audit the pension fund responsibility My with accordance in notes related and accounts Members Members of Essex County Council Independent Independent auditor’s report to the . Investment Management Expenses Management 11. Investment Liabilities and Assets Current 12. I read other information published with the my opinion I also evaluated the overall pension fund accounts and related notes adequacy of the presentation of information in and consider whether it is consistent with the pension fund accounts and related notes. the audited pension fund accounts. This Opinion other information comprises the remaining elements of the Pension Fund Annual Report. In my opinion: I consider the implications for my report if I - the pension fund accounts and related notes become aware of any apparent misstatements present fairly, in accordance with the Code or material inconsistencies with the pension of Practice on Local Authority Accounting fund accounts and related notes. My in the United Kingdom 2008, the financial responsibilities do not extend to any other transactions of the Pension Fund during the information. year ended 31 March 2009, and the amount Basis of audit opinion and disposition of the fund’s assets and liabilities as at 31 March 2009, other than I conducted my audit in accordance with the liabilities to pay pensions and other benefits Audit Commission Act 1998, the Code of Audit after the end of the scheme year; and Practice issued by the Audit Commission - the information given in the commentary and International Standards on Auditing (UK on financial performance included within the and Ireland) issued by the Auditing Practices Pension Fund Annual Report is consistent with Board. An audit includes examination, on the pension fund accounts. a test basis, of evidence relevant to the amounts and disclosures in the pension fund accounts and related notes. It also includes an assessment of the significant estimates and judgments made by the Authority in the preparation of the pension fund accounts and related notes, and of whether the accounting Paul King policies are appropriate to the Authority’s District Auditor circumstances, consistently applied and Officer of the Audit Commission adequately disclosed. Atlantic Business Centre, 64 Broomfield Road, I planned and performed my audit so as to Chelmsford, Essex, CM1 1SW obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give 30 September 2009 reasonable assurance that the pension fund accounts and related notes are free from material misstatement, whether caused by fraud or other irregularity or error. In forming

46 Essex Pension Fund Annual Report and Accounts 2008–2009 Additional Information: Statement of Investment Principles 47 2009 12 May Statement of Investment Principles

2009 10 Principles of Investment Management issued by the 1998 (as amended) “the Regulations” require local authority

31 March

Objectives Strategic Asset Allocation Investment Management Strategy Responsibilities Investment Limits General Fund Investment Restrictions Partnership Investments Socially Responsible Investments Corporate Governance Appendix A: Investment Steering Committee Core Investment Beliefs Appendix B: Fund Target Structure Appendix C: Mandate Performance Objectives Myners Investment Principles – Statement of Compliance Background

The Local Government Pension Scheme (Management and Investment of Funds) Regulations pension funds to prepare a Statement of Investment Principles “SIP” and to review it annually. They are also required to publish each year a Statement of Compliance with the as at Statement Statement of Investment Principles Government. The Essex Pension Fund “the Fund” first adopted a SIP on 1999 and has since reviewed it at least once each year. 51 52 53 55 56 58 59 60 61 65 66 67 49 48 Page Background

Essex County Council is the administering authority “the Authority” for the Fund under the Regulations. Responsibilities for its investment functions have been delegated to the Investment Steering Committee “ISC” and the Chief Financial Officer “the CFO”. The ISC is composed of 6 county councillors and 2 non-voting observers, one appointed annually by the Essex Local Government Association and representing all Fund Employers and the other by UNISON and representing all Fund Members. The ISC is provided with investment advice by Hymans Robertson, two independent investment advisers, the Executive Director for Finance & Deputy Chief Executive and the CFO. The Regulations specify that, in investing the Fund’s money, regard must be given to the need for diversification and to proper advice obtained at reasonable intervals. External investment managers have been appointed to make the day-to-day investment decisions.

Set out below are the key investment principles that have been adopted by the Fund.

48 Statement of Investment Principles Additional Information: Statement of Investment Principles

Objectives

1. The underlying aim of the Fund is to ensure Given the Fund’s long term strategic that employers’ contribution rates are set at allocation of assets at that time a level to attain 100% funding, as certified (re-weighting for Private equity) of: by the Fund’s Actuary, whilst keeping the % employers’ contribution rates as stable as 26.5 UK Equity possible. With regard to the investments 37.2 Overseas Equity of the Fund the objective is to maximise 6.0 Fixed Interest Gilts returns within an acceptable risk profile. 6.0 Index-Linked Gilts 2. In 2001 the Fund adopted a customised 12.0 Property benchmark, which sets out the strategic 6.0 Corporates asset allocation for the Fund. This was agreed 6.3 Private Equity (assume inclusion following the consideration of a detailed of shareholder activism) asset liability modelling exercise, taking account of the specific characteristics of the this would imply a long term strategic Fund. Such a study requires assumptions expected return of 7.06% p.a. on an to be made regarding returns on the Fund’s arithmetic weighted average of these assets and in this connection, in preparation individual returns. This does not take for the 2007 Valuation, Hymans Robertson account of any expected return from active were asked to update the investment management (including currency) or the expectations for the Fund. The following is a benefit we might expect from diversification summary of their findings: (which we expect to come through as ‘bonuses’). Using Hymans Robertson’s Expected strategic return on assets internal structure model (which, in this At 31 March 2007, Hymans Robertson’s case, also does not take account of active assumptions with regard to the long term management, but does allow for the returns on asset classes were: benefits of diversification) some analysis UK Equity: 7.9% was performed with respect to various Overseas Equity: 7.6% expected returns and the probability of Fixed Interest Gilts: 4.6% achieving that return. The model (based on Index-linked Gilts: 4.3% the current structure) calculates a central Property: 5.8% expected return of 7.93% p.a. The overall Corporate Bonds: 5.4% expected return on a portfolio of assets Private Equity: 9.3% does not solely reflect the arithmetic weighted average of the returns on the individual asset classes.

Statement of Investment Principles 49 This is due to diversification i.e. when and the strategic asset allocation has been you combine a portfolio of assets which set consistent with the liabilities in the Fund, are not fully correlated to each other, the taking full account of the risks involved expected portfolio return is greater than following the detailed consideration of the arithmetic combination of the individual the asset liability modelling exercise. This returns. This reflects the lower volatility was formulated to take account of the of the portfolio compared to the volatility ISC’s attitude to risk. The strategic asset of the sum of the parts. This is sometimes allocation, the customised benchmark and referred to as ‘volatility drag’. the tolerances set on investment managers’ The probability of achieving particular levels performance are the means by which the ISC of out-performance relative to the liabilities aims to achieve the overall fund objective. is as follows: 5. Risk associated with investments will Probability of achieving liabilities be controlled by the diversification of + 1.0% p.a.= 57% investments over asset classes and the use of a number of investment managers. Probability of achieving liabilities Regular reports will be made to the ISC. + 2.5% p.a.= 53% Probability of achieving liabilities 6. The majority of the Fund’s investments are + 3.5% p.a.= 50% quoted on major stock markets and are in readily realisable form. The Fund’s strategic 3. In September 2008 the ISC, as part of allocation to property and partnership a comprehensive review of investment investments, which are relatively illiquid, is strategy and structure, reviewed its currently 22.5% of the Fund’s assets. The approach to investment and set down Fund is relatively immature with almost its core investments beliefs. These are as many contributors as pensioners, reproduced in full at Appendix A. As part dependants and deferred pensioners. of that same review exercise they then In consequence the Fund has a positive re-examined the asset allocation and cash flow and is able to pay benefits from investment management structure of the contributions received. As the Fund is not in Fund and adopted a revised target structure the position of a forced seller, i.e. it does not that was in line with their core investment need to sell assets in order to pay benefits, beliefs. This is set out below with more it is considered appropriate to hold such detail provided in Appendix B. investments to increase diversification, 4. The risks in terms of volatility of funding minimise risk and improve long-term levels and employers’ contribution rates investment performance. have been considered in depth by the ISC

50 Statement of Investment Principles Additional Information: Statement of Investment Principles 51 Statement of Investment Principles % 9.7 3.5 3.5 3.5 5.0 2.5 4.0 4.0 28.0 12.0 24.3 100.0 2008 is as follows:

18 September

UK Equities Global Equities Overseas Equities Shareholder Activism Private Equity UK index-linked Fixed interest – UK gilts Fixed interest – Sterling non-government LIBOR+ Infrastructure Property Total

More detail is provided at Appendix B.

The Fund’s strategic asset allocation with effect from Strategic Strategic Asset Allocation Investment Management Strategy

The investment management strategy is to targets will be monitored and reviewed each appoint expert investment managers with quarter. In addition a detailed review of a clear performance benchmark and place their performance will be carried out on an maximum accountability for performance annual basis. against that benchmark on the investment 1. Managers are required to submit quarterly manager. The Fund has recently adopted a reports on their performance, their growth/income structure, allocating 70% of asset holding and their future intentions its assets to asset classes (equities, private together with any changes they are equity, activism) that are expected to grow planning to make to their portfolios. at levels significantly in excess of bonds in A statement of their compliance with the the long term and therefore reduce the cost SIP is also to be included. of providing pension provision and 30% of assets to income sectors (bonds, property 2. Managers are required to attend and infrastructure) to control overall meetings as requested with officers and volatility and provide cash income and advisers and/or the ISC to discuss their liquidity to the Fund. performance and future intentions. 3. Managers must comply with all legitimate Investment Managers instructions given to them by the The Fund’s investment management Authority. In the event of any perceived arrangements now consist of one passive conflict with the law, rules, regulations or balanced “swing” manager, four active global the agreement between the manager and equity managers, one active emerging market the Authority, the manager must consult equity manager, two active bond managers, with the Authority in order to resolve one private equity manager, one property the conflict. manager, two active currency managers (one 4. Managers must not enter into soft of whom also manages a passive currency commission arrangements in respect of the hedge) and holdings in shareholder activism funds they manage on behalf of the Fund funds and infrastructure. (See Appendix unless those arrangements have been B for asset allocation and Appendix C for approved by the Authority. details of individual investment managers’ mandates). 5. The Authority must be able to terminate the appointment of any manager by giving Managers’ performance against their agreed not more than one months notice.

52 Statement of Investment Principles Additional Information: Statement of Investment Principles

Responsibilities

ISC Responsibilities Custodian Responsibilities 1. To approve and annually review the 1. To safeguard all segregated assets content of the SIP. (excluding direct property holdings, unitised holdings and cash held 2. To appoint and review investment separately with either the Authority or managers, custodian and advisors. investment managers) within the Fund 3. To assess the quality and performance and ensure that all associated income of each investment manager annually in is collected, including dividends and tax conjunction with investment advisers and reclaims. Also to ensure that corporate the Chief Financial Officer. actions affecting the securities are dealt with, including rights issues, bonus 4. To set the investment parameters within issues and acquisitions. which the investment managers can operate and review these annually. 2. To provide regular statements of transactions, corporate actions, income 5. To monitor compliance of the investment and asset valuations as required by the arrangements with the SIP. Authority. 6. To assess the risks assumed by the Fund 3. To report to the ISC in person on the at a global level as well as on a manager assets of the Fund if required. by manager basis. 4. To inform the Fund of any areas of 7. To approve and review the asset concern which arise in its dealings with allocation benchmark for the Fund. investment managers. 8. To submit quarterly reports on its activities to the Essex Pension Fund Board.

Statement of Investment Principles 53 Audit Responsibilities Additionally the Council must prepare a Pension Fund annual report which should 1. The Fund is subject to review by both contain the Pension Fund account and net the County Council’s External Auditors asset statement with supporting notes (The Audit Commission) and internally by and disclosures. External Audit will review Internal Audit. the annual report as a whole and the accounts contained in it and then report: 2. The Pension Fund financial statements contained in the Council’s Annual • whether the accounts contained in the Statement of Accounts present fairly: annual report are consistent with the financial statements on which the audit • the financial transactions of its Pension opinion was given; and Fund during the year; and • that other information in the annual • the amount and disposition of the report is not inconsistent with the Fund’s assets and liabilities, other than financial statements on which the audit liabilities to pay pensions and other opinion was given. benefits after the end of the scheme year. 3. Internal Audit carry out a programme of work designed to reassure the Section The External Auditor audits the Pension 151 Officer that Fund investment systems Fund financial statements and gives their and records are properly controlled to opinion, including: safeguard the Fund’s assets. • whether they present fairly the 4. Investment Managers and Custodians financial position of the Pension Fund are subject to regulation by the Financial and its expenditure and income for the Services Authority and are required to year in question; and provide their customers with Internal • whether they have been prepared Financial Controls reports which have properly in accordance with relevant been prepared by their auditors. These legislation and applicable accounting reports form part of the overall assurance standards; and control mechanism for the Fund. In carrying out their audit of the financial statements, auditors will have regard to the concept of materiality.

54 Statement of Investment Principles Additional Information: Statement of Investment Principles

Investment Limits

The overriding limits that apply for the particular investments and types of different types of pension fund investments investments); and are set out in the Regulations. These • the decision must specify certain matters regulations allow an administering and those matters must be published authority to increase some of those limits in a revised statement of investment up to specified amounts. When deciding to principles before they can take effect. increase or review limits, the administering authority must: Having taken proper advice, from both external investment advisers and its own • take account of proper advice and officers, and having taken account of the of the factors in Regulation 9 (3) of factors in Regulation 9 (3) of the Regulations, the Regulations (the advisability of the ISC has decided to increase the following investing fund money in a wide variety investment limits as set out below: of investments and the suitability of

a. the description all contributions all contributions to investment in any of the investment to any single partnerships single insurance partnership contract

b. the limit on limit increased from limit increased from 5% from 25% of the total the amount of the 2% of total fund to of total fund to 15% of fund to 35% of the investment 3% of total fund total fund total fund c. the reason for to permit up to 3% to permit additional to permit additional the decision of the total fund investment in private investment in the to be invested in a equity, infrastructure, pooled funds of the single infrastructure shareholder activism Fund’s passive index fund organised as a and property tracking manager partnership partnerships

d. the period for for a period of for a period of 10 years for a period of 10 years which the decision 10 years from from 31 March 2008. from 27 July 2005 will apply; 31 March 2008.

The above decisions comply with the Regulations.

Statement of Investment Principles 55 General Fund Investment Restrictions

The Fund is subject to the overall restrictions to the next ISC meeting. Managers are specified in the Regulations, modified in responsible for reporting any possible certain instances by the Administering exceptions before they occur. Authority as set out above. In addition the 3. The use of derivatives is restricted Council has determined that the following to efficient portfolio management in restrictions should be applied:- circumstances where the impact on any A. For the Fund as a whole mandate or on the fund overall is tightly 1. Asset allocation benchmarks will be controlled by explicit limits on risk that set by the ISC to ensure that the Fund’s have been explicitly agreed by the ISC. assets are adequately diversified. A cap of 10% of the total value of each investment manager’s portfolio on the 2. Cash held in house by the Authority on total economic exposure to derivatives behalf of the Fund shall not normally must not be exceeded without the prior exceed £5 million unless in line with consent of the CFO. investment policy. 4. Hedging of the overseas currency 3. The cash holdings of individual exposure of the Fund is permitted for the investment managers will be monitored purpose of protecting against possible and reported upon. adverse fluctuations in the pounds B. For each individual Investment Manager sterling values of investments or cash in 1. Approval must be sought by each the Fund denominated otherwise than in individual investment manager for any pounds sterling. Managers will be allowed new investments in the unlisted securities some latitude to use forward currency of companies, in-house unit trusts, open- contracts to implement active currency ended investment companies or insurance views, provided that the aggregate risks contracts, including sub-underwriting across the portfolio remain within the contracts. limits explicitly agreed by the ISC under the terms of the mandate. 2. Individual investment managers must not hold more than 5% of equity capital of an 5. Underwriting of shares can only be individual company on behalf of the Fund. undertaken for investment purposes and However, in exceptional circumstances, must not be entered into for short term the CFO may increase this limit to 10%, trading. but details of these must be reported

56 Statement of Investment Principles Additional Information: Statement of Investment Principles 57 Statement of Investment Principles 2% more than 10% of the Index, exposure to that stock is limited to the market weighting as a proportion of the overall UK equities in the mandate. The monitoring of holdings is the responsibility of the individual investment managers. Investments of cash by investment managers must be in line with their individual management agreements which limit the amount that can be invested in any single institution. Controls have been agreed on the extent of the positive positions which a manager can take on individual UK equities relative to the proportion which that stock represents in the Index. Where the market weighting of an individual stock exceeds 6. 7. Partnership Investments

The ISC will scrutinise proposed partnership agreements and only enter into them if the terms of the agreements are appropriate and the purpose of the partnership supports the asset allocation strategy. The amount invested in any single partnership at the time of commitment must not exceed 3% of the Fund. Total investment in all partnerships at the time of commitment must not exceed 15% of the Fund.

58 Statement of Investment Principles Additional Information: Statement of Investment Principles

Socially Responsible Investments

1. The ISC does not place restrictions on investment managers in choosing investments in quoted companies except in limiting the size of single investments. We expect the companies in which we invest to adopt and pursue socially responsible business practices. 2. The ISC will intervene if investments are made in companies whose behaviour is seen as unacceptable because of environmental considerations and other social implications. Intervention is likely to be extremely rare as companies are aware of the increasing sensitivity of investors.

Statement of Investment Principles 59 Corporate Governance

1. The Fund fully supports the principles of The Fund recommends that its investment responsible share ownership and requires managers should follow OECD Corporate investment managers who hold shares Governance Principles and ICGN Global on its behalf to act as responsible share Corporate Governance Principles in owners. managing the overseas shares they hold on the Fund’s behalf. However where for 2. UK Shares whatever reason they do not deem this to The National Association of Pension be appropriate they are required to report Funds “NAPF” has produced a Corporate back to the ISC to obtain agreement to Governance Policy that the Fund believes alternative arrangements. encapsulates the principles of responsible share ownership. The Fund recommends that its investment managers should follow NAPF Corporate Governance Policy in managing the UK shares they hold on the Fund’s behalf. However where for whatever reason they do not deem this to be appropriate they are required to report back to the ISC to obtain agreement to alternative arrangements.

3. Overseas Shares The Organisation for Economic Co-operation and Development (OECD) has produced a set of Corporate Governance Principles and the International Corporate Governance Network (ICGN) a set of Global Corporate Governance Principles which provide widely accepted standards for corporate governance in many countries and which the Fund believes are suitable principles to apply to achieve responsible share ownership.

60 Statement of Investment Principles Additional Information: Statement of Investment Principles Appendix A

Essex Pension Fund Investment Steering Committee Core Investment Beliefs

1. Long term approach illiquidity premium on many asset a. Local authority funds take a long term classes, such as private equity and view of investment strategy infrastructure.

This is largely based on covenant. 2. Diversification Unlike the private sector, the covenant a. Diversification into alternative asset underlying the Fund is effectively gilt- classes (including property) is also edged. This means that short term expected to reduce overall volatility of volatility of returns can be acceptable the Fund’s funding level in the pursuit of long term gain. Whilst Given that the returns from different there is a need to consider stability of asset classes are expected to be contributions, at current maturity levels delivered in different cycles (i.e. not be and with deficits spread over 20 years, directly correlated with equity returns), it is largely the future service rate the use of alternative assets can reduce which is expected to drive instability. overall volatility in the delivery of Fund One of the best ways to avoid this is to returns without leading to a significant build in margins over the long term. reduction in overall expected return, b. Over the long term, equities are therefore increasing efficiency. expected to outperform other liquid b. In the context of LA funds (open, long asset classes, particularly bonds duration, not maturing quickly and Given 1. a. above, there is a preference with high equity content), an allocation for a significant allocation to equities in to bonds does not offer a match to the Fund as over the long-term as they liabilities, but additional diversification. are expected (but not guaranteed) to Where bonds are not used for liability outperform other asset classes. matching purposes, an allocation to c. Allocations to asset classes other than these assets can be beneficial from equities and bonds expose the Fund to an overall risk/return perspective other forms of risk premium improving the overall efficiency of the Fund. The corollary to this is that bond Investors with a long term investment benchmarks do not necessarily have to horizon and little need for immediate reflect the nature and duration of the liquidity can use this to their benefit liabilities (see benchmark section as it offers the ability to capture the

Statement of Investment Principles 61 below), but should be set to provide e. To some extent market cap weighted managers with the sufficient scope to indices reflect past winners, so should add value. be treated with caution c. The overweight to UK equities in The regional exposures in the most UK pension funds is historic and World Index are a function of the loosely based on currency exposures, relative market cap of the regional rather than a preference for the UK stockmarkets. In turn, these are a market function of the size of the economy as a whole and how well companies Although historically the UK may have performed in that economy. One have benefited from better corporate measure of the size of the economy governance, and therefore a higher could be its overall contribution to return, increasingly the rest of the global GDP. However, as has been world is catching up and UK equities seen in the UK, many companies in are not expected to outperform the market have little exposure to overseas equities over the long term. the domestic economy and, again, Given the concerns over market this should not be adhered to too concentration in the UK market and slavishly. At the total fund level a an increased opportunity set overseas fixed weights regional benchmark is a move towards increased overseas therefore preferred in order to maintain allocation relative to the UK seems an appropriate level of diversification appropriate. Concerns about currency across markets. This is particularly risk can be addressed by a separate the case when the allocations are currency hedging programme. maintained by a passive “swing” d. Benchmarks manager.

Where appropriate, benchmarks should f. Emerging market economies may be represent the full opportunity set expected to outperform over the long term as the economy develops and the For example, for a global equity risk premium falls mandate, a market capitalisation (“market cap”) weighted benchmark As emerging markets develop both reflects a passive allocation to the politically and economically, become market (analogous to investing in a more robust and less dependent on passive equity mandate and investing the fortunes of a small number of in each stock according to its size). developed economies (such as the It therefore reflects the investable US), the risk of investing in these universe of stocks available and countries should decrease. The return represents the starting point for an demanded by investors for investing in equity benchmark. these ‘riskier’ countries will therefore

62 Statement of Investment Principles Additional Information: Statement of Investment Principles

fall reflecting the increased security. for added value active management This reduction in required return would would seem appropriate as a way of tend to lead to a systematic increase increasing overall expected return in stock prices. As a result, a strategic (after fees) without significantly allocation to emerging markets of increasing the overall level of volatility at least the market cap weight if not in the funding level. slightly above is favoured. c. Constraints on active managers reduce g. Bond benchmarks do not need to their ability to add value reflect the nature and duration of the Active managers should not be liabilities unnecessarily constrained (within As discussed in the diversification appropriate risk limits) and should section above, if bonds are not held be given the maximum scope to for liability matching purposes, implement their active views. benchmarks should be set in order to There is therefore a preference maximise the scope for adding value. for unconstrained mandates e.g. unconstrained global equity mandates 3. Active versus passive management and unconstrained bond mandates a. Passive management is appropriate such as Prudential’s LIBOR plus for obtaining a low cost allocation to approach. This also suggests that, efficient markets within reason, managers’ requests for Where markets offer little scope additional scope should be acceded to. for adding value through active d. A degree of diversification of managers management (such as individual improves the efficiency of the overall allocations to UK equities, US equities structure (i.e. improves the expected and gilts) passive management return per unit of risk) is preferred as a low cost way of accessing the market. This does not Active manager performance is include emerging markets where the expected to be cyclical and therefore risk inherent in the market (although by appointing a number of managers improving as stated above) and the delivery of returns is expected to inefficiency of the market lends itself to be less volatile. However, too much active management. diversification can lead to expensive index tracking. b. Active management is appropriate where a market is relatively inefficient e. A rigorous approach to active manager offering opportunities for active selection improves the chance of managers to add value appointing an active manager who will add value over the long-term Where markets offer substantial scope

Statement of Investment Principles 63 An active manager must outperform favourable for others and vice versa. their benchmark after fees to add This is expected to deliver added value value. The selection of an active over the long-term whilst smoothing manager must assess more than the overall performance at the total just past performance and look into Fund level. Churning of managers leads the infrastructure supporting the to additional costs; however, where performance including; business and the ISC no longer views an investment ownership, philosophy and process, manager’s prospects as positive people, risk controls and fees. over the long-term, action should be implemented as soon as possible due to f. The Fund does not have the the potential downside risk. governance structure in place to take tactical views and market timing is very difficult

Both timing investments into the market and taking tactical views are very difficult given the governance structure in place and the time taken to agree and implement decisions. Where possible these decisions are left to professional investment managers who are closer to the market and can implement tactical views in a more timely fashion. This highlights the importance of not unnecessarily constraining active managers and providing them with appropriate scope. g. The assessment of active management performance should be taken with a long-term view and take account of the market environment in which returns are delivered

Active management is cyclical and periods of underperformance from investment managers should be expected so the structure should be such that when the market cycle is unfavourable for some managers it is

64 Statement of Investment Principles Essex Pension Fund – Target Structure as at 18 September 2008 Appendix B Appendix Passive Equities Bonds Alternatives Balanced

Benchmark (swing) Marathon Bernstein structure Currency Property Effective Activism Alliance Private Gifford Equity Baillie GSAM Infra– State M&G TBC* First L&G Pru

Fund Weighting 100.0 31.7 7.0 7.0 7.0 7.0 4.0 5.5 5.0 12.0 4.0 3.3 2.5 4.0 UK equities 9.7 25.3 50.0 Global equities 28.0 0.0 100.0 100.0 100.0 100.0 North America 7.8 19.4 50.0 Europe 6.1 19.4 Japan 4.3 13.5 Pacific ex-Japan 2.1 6.7 Emerging markets 4.0 100.0 Total Equities 62.0 84.2 100.0 100.0 100.0 100.0 100.0 100.0 UK index linked 3.5 7.6 20.0 UK Gilts 3.5 4.1 40.0 UK Corps 3.5 4.1 40.0 Libor+ 5.0 100.0 Total bonds 15.5 15.8 100.0 100.0 Statement of Investment Principles Principles Investment of Statement Infrastructure 2.5 100.0 Shareholder activism 4.0 100.0 Private equity 4.0 100.0 Property 12.0 100.0 Total alternatives 22.5 100.0 100.0 100.0 100.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Growth 70.0%

65 Income 30.0%

*Manager to be confirmed.

Statement of Investment Principles Investment of Statement Information: Additional Appendix C

Record 015 % . 0 Passive - Currency % 0

Record 18 . Active Currency Mellon 20 .%

Aviva % 0 . Property 1

Prudential

% 0

M&G . 1 or less 3% Bonds GSAM 25 % 25 % . .

1

2

First % 0

State .

Markets 4 12 % or less

Emerging

Aliance % % 9 0 –

Bernstein . 4 3

Baillie % 0

Gifford** .

3

or less

% 0

Pooled** . 0

>

5 year periods Global Equity Marathon Segregated % 0 . 9%

3

or less

*

Legal & General Swing

Index track

3

year 3 before fees net of fees Mandates: Performance Objectives Investment Investment * Manager to be appointed ** Outtperformance objectives over rolling Manager Outperformance year periods over rolling objective (p.a.)

Target tracking periods Target tracking rolling error (p.a.) over error limits over over limits error investment cycle

66 Statement of Investment Principles Additional Information: Statement of Investment Principles

Myners Investment Principles – Statement of Compliance

The position of the Essex Pension Fund “the Fund” in relation to the 10 principles set out in the CIPFA Pensions Panel - Principles for Investment Decision Making in the Local Government Pension Scheme in the United Kingdom is set out below.

Principle Extent of compliance Full Partial Not 1. Effective Decision Making 3 Comment/Justification The Fund has in place an Investment Steering Committee “the ISC”. The Fund has a designated group of County Councillors on the ISC, appointed by the Administering Authority “the Authority”, to whom responsibility for the management of investments has been assigned. There is a tradition of stability in the ISC’s membership that leads to the development of expertise. The ISC has accepted the need for members to acquire additional skills where necessary and arranges for special training from a variety of sources. The majority of the members of the ISC have received training specially designed to help them carry out their responsibilities. Induction arrangements for new members incorporate similar training. Training in current issues forms part of the ISC’s annual programme of meetings. Background reports are prepared on all investment decisions to be taken by the ISC and financial advisers are in attendance at ISC meetings. The ISC is currently supported by a section of suitably qualified staff within the Authority. These support staff arrangements are monitored to ensure that the appropriate level of support is provided. A formal business planning process is in place. The “trustees” of the Fund are Local Authority Councillors, payments to whom are governed by legislation. The Authority has in place a Scheme for the payment of allowances to members. Action to be taken Continue with an appropriate scheme of training in order to ensure all members are appropriately trained and that training is kept up to date. Monitor support staff arrangements to ensure that the appropriate level of support is provided. Prepare, approve and monitor an annual formal business plan.

StatementFunding of Investment Strategy PrinciplesStatement 67 Principle Extent of compliance Full Partial Not 2. Clear Objectives 3 Comment/Justification The underlying aim of the Fund is to ensure that employers’ contribution rates are set at a level to attain 100% funding, as certified by the Fund’s Actuary, whilst keeping the employers’ contribution rates as stable as possible. With regard to the investments of the Fund, the objective is to maximise returns within an acceptable risk profile. In undertaking the triennial valuations and setting the employers’ contributions, the Actuary makes assumptions about the Fund’s asset allocation and expected rate of return on assets. The Fund has adopted a customised benchmark, which sets out the strategic asset allocation for the Fund. The risks in terms of volatility of funding levels and employers’ contribution rates have been considered in depth by the ISC and that asset allocation has been set consistent with the liabilities in the Fund, taking full account of the risks involved following the detailed consideration of an asset liability modelling exercise. This was formulated to take account of the ISC’s attitude to risk. The strategic asset allocation, the customised benchmark and the tolerances set on investment managers’ performance are the means by which the ISC aims to achieve the overall fund objective. Risk associated with investments will be controlled via the diversification of investments over asset classes and the use of a number of investment managers. Regular reports are made to the ISC. Action to be taken Ensure that the above arrangements remain appropriate for the Fund through the existing processes that are in place for the review of funding strategy, asset allocation and investment management arrangements.

Principle Extent of compliance Full Partial Not 3. Focus On Asset Allocation 3 Comment/Justification The ISC recognises the importance of asset allocation and the contribution it can make to investment performance. The asset allocation, that forms the basis of the Fund’s customised benchmark, was originally proposed by the Fund’s adviser following an asset/liability modelling study, consulted on with our fund managers and debated within the ISC. A further asset liability modelling study, using the results of the 2004 actuarial valuation, was carried out in 2004/5 and the benchmark was adjusted in light of its recommendations. It is subject to review on at least an annual basis. The Fund’s allocation of assets is quite diverse and includes most asset classes, including private equity. A full range of investment opportunities were considered in arriving at the current asset allocation. Action to be taken Ensure that the asset allocation arrangements remain appropriate for the Fund through the existing process that is in place for the review of asset allocation, including where considered appropriate asset liability modelling studies.

68 Statement of Investment Principles Additional Information: Statement of Investment Principles

Principle Extent of compliance Full Partial Not 4. Expert Advice 3 Comment/Justification The Fund has separate arrangements in place for actuarial services and investment advice. As well as employing a firm of investment consultants the Fund also employs two independent advisers. The level of fees paid is considered sufficient to attract a broad range of kinds of potential providers. The contracts for actuarial services and institutional investment advice were put out to separate tender during 2003/04. The new contract for actuarial services with Mercers commenced in November 2003 and the new contract for Investment Advice with Hymans Robertson in May 2004. Action to be taken Continue with the periodic review of arrangements in place for services provided to the Fund

Principle Extent of compliance Full Partial Not 5. Explicit Mandates 3 Comment/Justification The Fund’s managers operate to explicit written mandates that give clear investment objectives and a clear timescale for measurement in line with this principle. All mandates have been reviewed and formalised in new written agreements that accord with the principle where it is considered to be appropriate Clear instructions on the types of financial instruments of which managers may make use and any restrictions that the Fund applies are provided to managers and set out in the Fund’s SIP. The Fund is provided with a considerable amount of information on the transaction related costs incurred on its behalf and mandates are set and major transactions undertaken so as to minimise transaction costs. Studies on transaction related costs were carried out in 2003/04 and 2004/05 and have been used to develop the Fund’s current strategy in relation to transaction related costs. Action to be taken Continue to monitor the appropriateness of the mandates in place for investment management as part of the manager review process. Ensure, as part of the regular review of the SIP that the instructions to, and restrictions on, managers remain clear and appropriate. Continue to monitor the efficiency of manager operations through their reports and specialist studies where appropriate.

StatementFunding of Investment Strategy Statement Principles­­­­­­­ 69 69 Principle Extent of compliance Full Partial Not 6. Activism 3 Comment/Justification Consultation is currently underway on UK legislation on this matter. The practice of the Fund has been to encourage managers to vote and to require them to report back to the ISC on votes cast. Fund managers are recommended to follow the National Association of Pension Funds Corporate Governance Policy and RREV voting recommendations in managing its UK shares and OECD Corporate Governance Principles and ICGN Global Corporate Governance Principles in managing its overseas shares. However where for whatever reason they do not deem this to be appropriate they are required to report back to the ISC to obtain agreement to alternative arrangements. Action to be taken Keep under review, monitoring any changes in best practice.

Principle Extent of compliance Full Partial Not 7. Appropriate Benchmarks 3 Comment/Justification The Fund has adopted a customised benchmark, designed with the advice of the Fund’s advisers and in consultation with investment managers. It reviews its asset allocation strategy and the benchmark annually taking into account the factors referred to in the principles. It also reviews its investment management arrangements annually and has mandates based on just these considerations. Action to be taken Continue with the existing monitoring and review processes.

Principle Extent of compliance Full Partial Not 8. Performance Measurement 3 Comment/Justification The performance of the Fund is monitored by the ISC on a regular basis with a more extensive annual review each July. These reviews include the performance of individual managers. Returns on managers’ performance are obtained from specialist performance measurement agencies and considered as part of these annual reviews. A formal assessment of performance of the ISC and advisers was carried out in 2003/04. At least once each year a Forum is held for Fund employers and a report provided on the Fund performance. Action to be taken Continue with the above processes, monitoring to ensure that they remain appropriate.

70 Statement of Investment Principles Additional Information: Statement of Investment Principles

Principle Extent of compliance Full Partial Not 9. Transparency 3 Comment/Justification The Fund’s SIP sets out: • the responsibilities of the ISC and other parties; • the Fund’s objective; • the Fund’s asset allocation strategy including projected investment returns on all asset classes and how the strategy has been arrived at; and • the mandates given to all advisers and managers. It does not however provide the level of detail recommended in the principle because to do so would make the SIP overlong and reduce its readability and also because some of the information is deemed to be commercially sensitive and not in the Fund’s interest to publish. Action to be taken Ensure that the information included in the SIP remains up to date and appropriate for its purpose.

Principle Extent of compliance Full Partial Not 10. Regular Reporting 3 Comment/Justification The Fund’s Annual Report and Accounts “the Accounts” are published each year and copied to all Fund employers and any other interested parties. The SIP, which contains detail on the results of the monitoring of investment managers, was included in the Accounts until 2003/04 but is now published separately. With effect from 2007/8, in compliance with new regulations, the SIP will once again be included in the Accounts. Copies of the SIP and this Statement of Compliance “SOC” are provided to all Fund employers. Although copies of the Accounts, SIP and SOC are sent to all Fund employers and any other interested parties they are not sent to employees although they are available on request. The Accounts, SIP and SOC, are also published on the County Council’s website. Action to be taken Continue with the above reporting arrangements, monitoring to ensure that they remain appropriate for their purpose and compare well with best practice.

Statement of Investment Principles 71 Funding Strategy Statement 2008 as at 31 March 2008

This Statement has been prepared by Essex County Council (the Administering Authority) to set out the funding strategy for the Essex Pension Fund (the Fund), in accordance with Regulation 76A of the Local Government Pension Scheme Regulations 1997 (as amended) and the guidance paper issued in March 2004 by the Chartered Institute of Public Finance and Accountancy (CIPFA) Pensions Panel.

72 Funding Strategy Statement Additional Information: Funding Strategy Statement

­­­Contents

Page 74 Introduction 75 Purpose of the FSS in policy terms 76 Aims and purpose of the Fund 77 Responsibilities of the key parties 78 Solvency issues and target funding levels 82 Link to investment policy set out in the SIP 86 Identification of risks and countermeasures 88 Monitoring and Review 89 Schedule A - Employers who will be given the opportunity to phase in the increase in their deficit recovery contributions over the 3 year period 2005/06 to 2007/08 90 Schedule B - Funding strategy risk assessment 93 Appendix

Funding Strategy Statement 73 Introduction

The Local Government Pension Scheme Government Pension Scheme (the Scheme) (England and Wales) (Amendment) are guaranteed by statute and therefore Regulations 2004 provide the statutory the pensions promise is secure. The FSS framework from which the Administering addresses the issue of managing the need Authority is required to prepare a Funding to fund those benefits over the long term, Strategy Statement (FSS). The key whilst at the same time, facilitating scrutiny requirements for preparing the FSS can be and accountability through improved summarised as follows: transparency and disclosure. • After consultation with all relevant The Scheme is a defined benefit final interested parties involved with the Fund salary scheme under which the benefits the Administering Authority will prepare are specified in the governing legislation and publish their funding strategy; (the Local Government Pension Scheme Regulations 1997 (as amended))(“the • In preparing the FSS, the Administering Regulations”). The required levels of Authority must have regard to:- employee contributions are also specified in • the guidance issued by CIPFA for this the Regulations. purpose; and Employer contributions are determined in • the Statement of Investment Principles accordance with the Regulations (principally (SIP) for the Fund published under Regulation 77) which require that an Regulation 9A of the Local Government actuarial valuation is completed every three Pension Scheme (Management and years by the Actuary appointed by the Fund, Investment of Funds) Regulations 1998 including a rates and adjustments certificate. (as amended); Contributions to the Fund should be set so as • The FSS must be revised and published to “secure its solvency”, whilst the Actuary whenever there is a material change in the must also have regard to the desirability policy on the matters set out in either the of maintaining as nearly constant a rate of FSS or the SIP. contribution as possible. The Actuary must have regard to the FSS in carrying out the valuation.

Benefits payable under the Local

74 Funding Strategy Statement Additional Information: Funding Strategy Statement

Purpose of the FSS in policy terms

Funding is defined as the making of advance The intention is for this strategy to be both provision to meet the cost of accruing benefit cohesive and comprehensive for the Fund promises. Decisions taken regarding the as a whole, recognising that there will approach to funding will therefore determine be conflicting objectives that need to be the rate or pace at which this advance balanced and reconciled. Whilst the position provision is made. Although the Regulations of individual employers must be reflected specify the fundamental principles on which in the statement, it must remain a single funding contributions should be assessed, strategy for the Administering Authority to implementation of the funding strategy is the implement and maintain. responsibility of the Administering Authority, acting on the professional advice provided by the Actuary. The purpose of this FSS is: • to establish a clear and transparent fund- specific strategy which will identify how employers’ pension liabilities are best met going forward; • to support the regulatory requirement to maintain as nearly constant employer contribution rates as possible; and • to take a prudent longer-term view of funding those liabilities.

Funding Strategy Statement 75 Aims and purpose of the Fund

The aims of the Fund are to: • enable employer contribution rates to be kept as nearly constant as possible; • manage employers’ liabilities effectively; • ensure that sufficient resources are available to meet all liabilities as they fall due; and • maximise the returns from investments within reasonable risk parameters.

The purpose of the Fund is to: • receive monies in respect of contributions, transfer values and investment income; and • pay out monies in respect of scheme benefits, transfer values, costs, charges and expenses, as defined in the Local Government Pension Scheme Regulations 1997 (as amended) and in the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 (as amended).

76 Funding Strategy Statement Additional Information: Funding Strategy Statement

Responsibilities of the key parties

Although a number of parties, including • make additional contributions in investment fund managers, investment accordance with agreed arrangements advisers and external auditors, have in respect of, for example, augmentation responsibilities to the Fund, the key parties of scheme benefits and early retirement for the strategy are seen as the Administering strain; and Authority, each individual employer and the Fund Actuary. • notify the Administering Authority promptly of all changes to membership or, other changes proposed, which affect future funding. The Administering Authority should: • collect employer and employee contributions; The Fund Actuary should: • invest surplus monies in accordance with • prepare valuations, including the the Regulations; setting of employers’ contribution rates, after agreeing assumptions with the • ensure that cash is available to meet Administering Authority and having regard liabilities as and when they fall due; to the FSS; • manage the valuation process in • prepare advice and calculations in consultation with the Fund Actuary; connection with bulk transfers and • prepare and maintain an FSS and a SIP, individual benefit-related matters; and both after due consultation with interested • advise on funding strategy, the preparation parties; and of the FSS, and the inter-relationship • monitor all aspects of the Fund’s between the FSS and the SIP. performance and funding and amend the FSS/SIP when necessary.

The Individual Employer should: • deduct contributions from employees’ pay correctly; • pay over all contributions, including their own as determined by the Fund Actuary, promptly by the due date; • exercise discretions within the regulatory framework;

Funding Strategy Statement 77 Solvency issues and target funding levels

To meet the requirements of the Regulations • we have a large number of employing the Administering Authority’s long-term bodies with different characteristics funding objective is to achieve and then including size and strength of covenant. maintain assets equal to 100% of projected As part of each valuation separate employer accrued liabilities (the “funding target”), contribution rates are assessed by the assessed on an ongoing basis including actuary for each participating employer allowance for projected final pay. or group of employers. These rates are The principal method and assumptions to be assessed taking into account the experience used in the calculation of the funding target and circumstances of each employer (or and determining employer contributions are employer grouping), following a principle set out in the Appendix. of no cross-subsidy between the various employers in the Scheme. In attributing the The method and assumptions making up the overall investment performance obtained on funding strategy and as adopted for the 2007 the assets of the Scheme to each employer a actuarial valuation have been determined in pro-rata principle is adopted. This approach accordance with the following principles: is effectively one of applying a notional • our long-term aim is to achieve 100% individual employer investment strategy funding of pension liabilities; identical to that adopted for the Scheme as a whole. • the Scheme is expected to continue for the foreseeable future; The effective date of the current actuarial valuation of the Fund is 31 March 2007. • favourable investment performance can The preliminary results of the valuation play a valuable role in achieving adequate indicate that overall the assets of the Fund funding over the longer term; represented 80% of projected accrued • we wish to minimise fluctuations in liabilities at the valuation date. employers’ contributions in order to assist The Administering Authority after due them with their financial planning and to meet consideration of all of the information their financial responsibilities to the Fund; available to it including consultation with • the Fund is relatively immature in terms the Fund Actuary and other interested of its membership profile with a high parties, has adopted the following objectives proportion of contributors and we can for setting employer contribution rates to therefore take advantage of that fact in achieve the funding target: setting our investment strategy;

78 Funding Strategy Statement Additional Information: Funding Strategy Statement

• we will set employers’ contribution rates • safeguard the interests of the Fund by having to achieve 100% funding of liabilities in regard to the strength of covenant and the the long term; financial stability of the grouped employers. • employer contribution rates will be made • Schools, including former grant up of two separate rates: maintained schools, will be treated as • an ongoing rate to recover the costs of part of the local education authority future service; and within whose area of responsibility they • a deficit recovery rate to recover the fall for the purpose of setting contribution shortfall revealed by the actuarial rates and deficit recovery periods. Any valuation; discretions in respect of these matters will fall to the local education authority. • we will for the purpose of our administration, the calculation of • we will set maximum deficit recovery contribution rates and for the setting of periods for the remaining employers but maximum deficit recovery periods, deal with will leave them the freedom to decide certain employers and types of employers to repay their share of the deficit over a in discrete groups as set out below: shorter period should they so choose. The • town and parish councils; and maximum deficit recovery periods will be • those small admission bodies that set at levels that: were members of the small admission • are likely to reduce the level of deficit bodies group as at 1 April 2007; during the inter-valuation period if all of the Actuary’s assumptions prove correct; • we will set deficit recovery periods for the and above groups of employers. Those deficit • safeguard the interests of the Fund by recovery periods will be set at levels that: having regard to the strength of • are likely to reduce the level of deficit covenant and the financial stability of during the inter-valuation period if all of individual employers. the Actuary’s assumptions prove correct; and

Funding Strategy Statement 79 The deficit recovery periods for the grouped emplo­yers will be as follows:

Employer Category Deficit Recovery Period Town and parish councils 20 years Small admission bodies The average remaining working life of small admission bodies’ work-forces as at 1 April 2007

The maximum deficit recovery periods for other employers will be as follows:

Employer Category Maximum Deficit Recovery Period Scheme employers 20 years Arms length management 20 years organisations of scheme employers Care trusts 20 years Admission bodies working Either the period that the contract still has to run or on contracts for scheme 20 years whichever is the shorter period. employers Other admission bodies The average remaining working life of the employer’s work-force as at 1 April 2007

80 Funding Strategy Statement Additional Information: Funding Strategy Statement

• that certain individual employers, In determining the above objectives the detailed in Schedule A, will be given the Administering Authority has had regard to: opportunity to phase in the increase in their ongoing rate contributions in • the responses made to the consultation combination with their changed deficit with employers on the FSS principles; recovery contributions in steps over the 3 year period 2008/09 to 2010/11. • the need to balance a desire to attain the target as soon as possible against the • that for the grouped employing bodies major increases in the level of employers’ (small admission bodies and town & parish contributions which a shorter period councils) deficit recovery contributions and would require; and ongoing rate contributions will be phased in, in steps over the 3 year period 2008/09 • The Administering Authority’s views on the to 2010/11 strength of the participating employers’ covenants in achieving the objective. • on the cessation of an employer’s participation in the Scheme, the actuary will be asked to make a termination assessment. Any deficit in the Scheme in respect of the employer will be due to the Scheme as a termination contribution, unless it is agreed by the Administering Authority and the other parties involved that the assets and liabilities relating to the employer will transfer within the Scheme to another participating employer.

Funding Strategy Statement 81 Link to investment policy set out in the SIP

The preliminary results of the 2007 valuation declared funding level would have been show the liabilities to be 80% covered by the correspondingly reduced, to approximately 62%. current assets, with the funding deficit of 20% Departure from a least risk investment being covered by future deficit contributions. strategy, in particular to include equity In assessing the value of the Fund’s investments, gives the prospect that out- liabilities in the valuation, allowance has performance by the assets will, over time, been made for asset out-performance as reduce the contribution requirements or described in the Appendix, taking into at the minimum contribute to offsetting account the investment strategy adopted by increases in contributions arising from the Fund, as set out in the SIP. issues such as increased longevity. The funding target might in practice therefore It is not possible to construct a portfolio be achieved by a range of combinations of investments that produces a stream of funding plan, investment strategy and of income exactly matching the expected investment performance. liability payment stream. However, it is possible to construct a portfolio that closely The current benchmark investment strategy, matches the liabilities and represents the as set out in the SIP, is: least risk investment position. Such a With regard to the investments of the Fund portfolio would consist of a mixture of long- the objective is to maximise returns within term index-linked and fixed interest gilts. an acceptable risk profile. In 2001 the Fund Investment of the Fund’s assets in line with adopted a customised benchmark, which the least risk portfolio would minimise set out the strategic asset allocation for fluctuations in the Fund’s ongoing funding the Fund. This was agreed following the level between successive actuarial valuations. consideration of a detailed asset liability modelling exercise, taking account of If, at the valuation date, the Fund had the specific characteristics of the Fund. been invested in this portfolio, then in (That original customised benchmark has carrying out the valuation it would not be subsequently been updated to reflect appropriate to make any allowance for current thinking.) Such a study requires out-performance of the investments. On assumptions to be made regarding returns this basis of assessment, the assessed on the Fund’s assets and in this connection, value of the Fund’s liabilities at the 2007 in preparation for the 2007 Valuation, valuation would have been significantly Hymans Robertson were asked to update the higher, by approximately 29%, and the

82 Funding Strategy Statement Additional Information: Funding Strategy Statement

investment expectations for the Fund. The this would imply a long term strategic following is a summary of their findings: expected return of 7.06% p.a. on an arithmetic weighted average of these Expected strategic return on assets individual returns. This does not take At 31 March 2007, Hymans Robertson’s account of any expected return from active assumptions with regard to the long term management (including currency) or the returns on asset classes were: benefit we might expect from diversification (which we expect to come through as UK Equity: 7.9% ‘bonuses’). Using Hymans Robertson’s Overseas Equity: 7.6% internal structure model (which, in this case, also does not take account of active Fixed Interest Gilts: 4.6% management, but does allow for the Index-linked Gilts: 4.3% benefits of diversification) some analysis was performed with respect to various Property: 5.8% expected returns and the probability of Corporate Bonds: 5.4% achieving that return. The model (based on the current structure) calculates a central Private Equity: 9.3% expected return of 7.93% p.a. The overall Given the Fund’s long term strategic allocation expected return on a portfolio of assets does of assets at that time (re-weighting for Private not solely reflect the arithmetic weighted equity) of: average of the returns on the individual asset classes. This is due to diversification % i.e. when you combine a portfolio of assets 26.5 UK Equity which are not fully correlated to each other, 37.2 Overseas Equity the expected portfolio return is greater than the arithmetic combination of the individual 6.0 Fixed Interest Gilts returns. This reflects the lower volatility of 6.0 Index-Linked Gilts the portfolio compared to the volatility of the sum of the parts. This is sometimes referred 12.0 Property to as ‘volatility drag’. 6.0 Corporates 6.3 Private Equity (assume inclusion of shareholder activism)

Funding Strategy Statement 83 The probability of achieving particular levels consistent with the liabilities in the Fund, of out-performance relative to the liabilities taking full account of the risks involved is as follows: following the detailed consideration of the asset liability modelling exercise. This Probability of achieving was formulated to take account of the liabilities + 1.0% p.a.= 57% ISC’s attitude to risk. The strategic asset Probability of achieving allocation, the customised benchmark and liabilities + 2.5% p.a.= 53% the tolerances set on investment managers’ performance are the means by which the ISC Probability of achieving aims to achieve the overall fund objective. liabilities + 3.5% p.a.= 50% Risk associated with investments will The risks in terms of volatility of funding be controlled via the diversification of levels and employers’ contribution rates investments over asset classes and the have been considered in depth by the Fund’s use of a number of investment managers. Investment Steering Committee (ISC) and Regular reports will be made to the ISC. the strategic asset allocation has been set

The Actuary’s market related assumptions in regard to the 2007 valuation are:

% A liability based fixed interest gilt yield of: 4.4 A liability based index linked gilt real yield of: 1.3 Therefore implied inflation of: 3.1

84 Funding Strategy Statement Additional Information: Funding Strategy Statement

His asset out performance assumptions are:

Past service liabilities Pre-retirement = gilts + 2.5% Post – retirement = gilts +1% Total fund = gilts + 1.9%* Future service liabilities = Inflation + 3.75%

Given the above assumptions as to fixed return requirements for the fund relative to interest gilt yields and inflation these conditions as at 31 March 2007: give the following assumed investment

% Past service liabilities =4.4% + 1.9% = 6.30 Future service liabilities =3.1% + 3.75% = 6.85

Examination of the Fund Returns expected allowing for the benefit of diversification by Hymans Robertson shows a long term of 7.93%. It is felt that the long term strategic expected return (for the individual investment return expected for the Fund asset classes) of 7.06% and a long term gives a comfortable margin over the strategic expectation for the whole fund Actuary’s assumptions.

Funding Strategy Statement 85 ­­­Identification of risks and counter-measures

Awareness of the risks that may impact on inherent in the predominantly equity based the funding strategy and expectations of strategy, so that actual asset out-performance future solvency is crucial to determining the between successive valuations could diverge appropriate measures to mitigate those risks. significantly from the overall 1.9% per annum required. The funding of defined benefits is by its nature uncertain. The funding strategy is The chart below shows a “funnel of doubt” based on both financial and demographic funding level graph, which illustrates assumptions. These assumptions are the range and uncertainty in the future specified in the actuarial valuation report. progression of the funding level, relative to When actual experience is not in line with the the funding target adopted at the valuation. assumptions adopted a surplus or shortfall Using a simplified model, the chart shows will emerge at the next actuarial valuation the probability of exceeding a certain funding and may require a subsequent contribution level over a 10 year period from the valuation adjustment to bring the funding back into line date. For example, the top line shows the with the target. 95th percentile level (i.e. there is a 5% chance of the funding level at each point in time being The Administering Authority has been better than the funding level shown, and a 95% advised by the Actuary that the greatest risk chance of the funding level being lower). in the funding strategy is the investment risk

140%

Funding L evel 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 50th Percentile 95th Percentile 75th Percentile 25th Percentile 5th Percentile

86 Funding Strategy Statement Additional Information: Funding Strategy Statement

The Administering Authority has itself undertaken an exercise to identify those risks that are specific to the Fund and the measures to be taken to counter those risks. These include the strengthening of the arrangements for the discretionary admission of employing bodies under the “community of interest” provisions. These arrangements, unlike those for transferee admission arrangements which incorporate a guarantee from the transferring scheduled body employer and bond requirements, currently leave the fund exposed to the risk that the employer will default on their liabilities. Our solution is to impose requirements on “community of interest” admissions that they are either sponsored by a scheduled body, guaranteeing their liabilities or required to provide a bond, indemnifying the fund as a whole. This will immediately reduce the risk borne by the fund albeit at the expense of individual employers. The resultant risk assessment is attached to this FSS as Schedule B.

Funding Strategy Statement 87 Monitoring and Review

The Administering Authority has taken advice • if there have been changes to the from the Fund Actuary in preparing this circumstances of any of the employing Statement, and has also consulted with its authorities to such an extent that they institutional investment advisers Hymans impact on or warrant a change in the Robertson, its independent investment funding strategy; and advisers Keith Neale and Tony Hardy and • if there have been any significant special the Pension Fund’s Investment Steering contributions paid into the Fund. Committee. Approved in accordance with the powers A full review of this Statement will occur no delegated to me. less frequently than every three years, to coincide with completion of a full actuarial valuation. Any review will take account of the then current economic conditions and will also reflect any legislative changes. Margaret Lee The Administering Authority will monitor the Head of Financial Control and Governance progress of the funding strategy between 31 March 2008 full actuarial valuations. If considered appropriate, the funding strategy will be reviewed (other than as part of the triennial valuation process), for example: • if there has been a significant change in market conditions and/or deviation in the progress of the funding strategy; • if there have been significant changes to Fund membership, or LGPS benefits;

88 Funding Strategy Statement Additional Information: Funding Strategy Statement Schedule A - Employers who will be given the opportunity to introduce the increase in their deficit recovery contributions and/or their ongoing rate contributions in steps over the 3 year period 2008/2009 to 2010/2011 by either phasing or aggregation;

Essex County Council Colchester Sixth Form College Basildon District Council Epping Forest College Braintree District Council Harlow College Brentwood Borough Council Palmers Sixth Form College Castle Point Borough Council South East Essex College of Arts & Technology Chelmsford Borough Council South East Essex Sixth Form College Colchester Borough Council Thurrock and Basildon College Epping Forest District Council Writtle Agricultural College Harlow District Council Anglia Polytechnic University Maldon District Council University of Essex Rochford District Council Southend-on-Sea Borough Council (Unitary) Tendring District Council Thurrock Council (Unitary) Uttlesford District Council Essex Fire Authority Essex Police Authority Essex Probation Committee Braintree College Chelmsford College Colchester Institute

Funding Strategy Statement 89 Schedule B - Funding strategy risk assessment

Risk Consequence Action proposed to mitigate effects Investment markets Increases required in - Diversified portfolio perform below actuarial employers’ contributions - Monitoring against targets assumptions - Reallocation of assets - Keep employers informed Market yields move at Increases required in - Diversified portfolio variance with actuarial employers’ contributions - Monitoring against targets assumptions - Reallocation of assets - Keep employers informed Investment managers Increases required in - Diversified structure fail to achieve employers’ contributions - Monitor against targets performance targets - Change managers where considered appropriate - Keep employers informed Asset reallocation in Increases required in - Monitor against benchmark volatile markets may employers’ contributions - Automatic rebalancing lock in past losses process in place which prevents lock-in of losses Illiquidity of certain Difficulty in realising - Monitoring markets and asset investments - Factor into disinvestments classes strategy Pay and price inflation Increases required in - Monitoring significantly different employers’ contributions - Keep employers informed from actuarial assumptions The effect of increases Employers default on - Take view on strength of in employers’ contributions their contributions individual employer’s on employers’ ability to pay covenant when setting terms of admission agreement (inc. bonds) and in setting term of deficit recovery - Keep employers’ contributions as stable and affordable as possible Mortality rates continue Increases required in - Strengthening of actuarial to improve. employers’ contributions valuation assumptions - Keep employers informed - Monitoring

90 Funding Strategy Statement Additional Information: Funding Strategy Statement

Risk Consequence Action proposed to mitigate effects Frequency of early Increases required in - Ensure that employers are retirements increases employers’ contributions made aware of consequences of their decisions - Ensure that employers are financially responsible for consequences of their decisions - Monitor situation on ill health retirements - Keep employers informed Adverse changes to Increases required in - Ensuring that Fund concerns LGPS regulations employers’ contributions are raised in consultation process and decision makers lobbied - Monitor - Keep employers informed Adverse changes to Increases required in - Ensure that Fund concerns other legislation, tax employers’ contributions are raised in consultation process rules etc. and decision makers lobbied - Monitor - Keep employers informed Administering authority Individual employer’s - Ensure that employers are unaware of structural contribution becomes reminded of their responsibilities changes in an inappropriate requiring - Monitor and send reminders of employer’s membership review and increase. employers responsibilities re this where appropriate Administering authority Individual employer’s - Ensure that employers are not advised of an employer contribution becomes reminded of their responsibilities closing to new entrants inappropriate requiring - Monitor and send reminders of review and increase. employers responsibilities re this where appropriate

Funding Strategy Statement­­­­­­­ 91 Risk Consequence Action proposed to mitigate effects An employer ceasing to Increases required in - Admission arrangements exist with insufficient employers’ contributions strengthened for new admissions funding or adequacy of bond under the “community of interest” provisions to require that they are subjected to a risk assessment, sponsored by a scheduled body, guaranteeing their liabilities, and may be required to provide a bond - Take view on strength of individual employer’s covenant when setting terms of admission agreement (inc. bonds) and in setting term of deficit recovery - Monitor - Keep employers informed Failure in supervision of Increases required in - Ensure ISC properly investment managers employers’ contributions - resourced, sufficient time made available to consider issues, reports prepared on all matters of concern, suitable training given, proper decision making processes employed and arrangements in place to ensure continuity maintained Loss of key staff at Increases required in - Monitor investment managers employers’ contributions - Replace managers if considered appropriate Loss of key staff at Failure to achieve - Monitor Administering Authority funding strategy - Structure duties and training ­­­­ to assist in continuity - Replace staff as soon as possible - Recruitment and retention measures

92 Funding Strategy Statement Additional Information: Funding Strategy Statement

Appendix Actuarial Valuation as at 31 March 2007

Method and assumptions used in calculating the funding target, for the long term the funding target additional investment performance on the assets of the Fund relative to the yields Method available on long dated gilt stocks as at the The actuarial method to be used in the valuation date. The allowance for this out- calculation of the funding target is the performance is based on the liability profile Projected Unit method, under which the of the Scheme, with a higher assumption in salary increases assumed for each member respect of the “pre-retirement” (i.e. active and are projected until that member is assumed deferred pensioner) liabilities than for the to leave active service by death, retirement “post-retirement” (i.e. pensioner) liabilities. or withdrawal from service. This method This approach thereby allows for a gradual implicitly allows for new entrants to the shift in the overall equity/bond weighting scheme on the basis that the overall age of the Fund as the liability profile of the profile of the active membership will remain membership matures over time. stable. As a result, for those employers which Individual Employers are closed to new entrants, an alternative method is adopted (The Attained Age Having determined the AOAs as above for method), which makes advance allowance for the Fund overall, it is important to consider the anticipated future aging and decline of the how the financial assumptions in particular current closed membership group. impact on individual participating employers. As employers in the Fund will have different Financial assumptions mixes of active, deferred and pensioner Investment return (discount rate) members, adopting a different pre/post retirement investment return approach is A yield based on market returns on UK equivalent to hypothecating a different Government gilt stocks and other instruments equity/bond mix investment strategy for which reflects a market consistent discount each employer. Such an approach would rate for the profile and duration of the be inconsistent with the Fund practice, as Scheme’s accrued liabilities, plus an Asset set out in the FSS, of allocating investment Out-performance Assumption (“AOA”) of 2.5% performance pro rata across all employers p.a. for the period pre-retirement and 1.0% based on a “mirror image” investment p.a. post-retirement. strategy to the whole Fund. In completing The asset out-performance assumptions the calculations for individual employers represent the allowance made, in calculating therefore, a single, composite, pre and post

Funding Strategy Statement 93 retirement asset out-performance assumption method and assumptions as used to calculate of 1.5% p.a. has been calculated which, for the the funding target except that the financial Fund as a whole, gives the same value of the assumptions adopted will be as described below. funding target as the separate pre and post The financial assumptions for assessing the retirement AOAs. future service contribution rate should take Inflation (Retail Prices Index) account of the following points: The inflation assumption will be taken to • contributions will be invested in market be the investment market’s expectation conditions applying at future dates, which for inflation as indicated by the difference are unknown at the effective date of the between yields derived from market valuation, and which are not directly linked instruments, principally conventional and to market conditions at the valuation date; and index-linked UK Government gilts as at the • the future service liabilities for which these valuation date, reflecting the profile and contributions will be paid have a longer duration of the Scheme’s accrued liabilities. average duration than the past service Salary increases liabilities. The assumption for real salary increases The financial assumptions In relation to (salary increases in excess of price inflation) future service (i.e. the normal cost) are not will be determined by an allowance of specifically linked to investment conditions as 1.5% p.a. over the inflation assumption as at the valuation date itself, and are based on described above. This includes allowance for an overall assumed real return (i.e. return in promotional increases. excess of price inflation) of 3.75% per annum, with a long term average assumption for price Pension increases inflation of 2.75% per annum. These two Increases to pensions are assumed to be assumptions give rise to an overall discount in line with the inflation (RPI) assumption rate of 6.5% p.a. described above. This is modified Adopting this approach the future service appropriately to reflect any benefits which rate is not subject to variation solely due are not fully indexed in line with the RPI (e.g. to different market conditions applying at Guaranteed Minimum Pensions in respect of each successive valuation, which reflects the service prior to April 1997). requirement in the Regulations for stability Full details of the assumptions adopted are set in the “Common Rate” of contributions. In out in the actuary’s formal valuation report. market conditions at the effective date of the 2007 valuation this approach gives rise to a Method and assumptions used in calculating somewhat more optimistic stance in relation the cost of future accrual to the cost of accrual of future benefits The cost of future accrual (normal cost) compared to the market related basis used for will be calculated using the same actuarial the assessment of the funding target.

94 Funding Strategy Statement Additional Information: Funding Strategy Statement

At each valuation the cost of the benefits out-performance assumptions used for the accrued since the previous valuation will funding target is fully taken into account in become a past service liability. At that time assessing the funding position. any mismatch against gilt yields and the asset

Summary of key whole Fund assumptions used for calculating funding target and cost of future accrual (the “normal cost”) for the 2007 actuarial valuation

Long-term gilt yields Fixed interest 4.4% p.a. Index linked 1.3% p.a. Implied RPI price inflation 3.1% p.a.

Past service Funding Target financial assumptions Investment return pre-retirement 6.9% p.a. Investment return post-retirement 5.4% p.a. Salary increases 4.6% p.a. Pension increases 3.1% p.a.

Future service accrual financial assumptions Investment return 6.5% p.a. RPI price inflation 2.75% p.a. Salary increases 4.25% p.a.

Pension increases 2.75% p.a.

Principal demographic assumptions Non-retired members’ mortality PA92 MC YoB tables + 1 year (+5 years for retirements in ill health) Retired members’ mortality PA92 MC YoB tables + 1 year (+5 years for retirements in ill health) Commutation One half of members take maximum lump sum, others take 3/80ths

Funding Strategy Statement 95 Governance Compliance Statement 2009 as at 13 June 2009

Page 97 Legal Requirements 98 Introduction 99 The Governance Arrangements of the Essex Pension Fund 102 Essex Pension Fund Governance Compliance Statement

96 GovernanceGovernance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement

Legal Requirements Governance Compliance Statement

Under the Local Government Pension 3. An administering authority must - Scheme (LGPS) Regulations all LGPS a. revise their statement following a material Funds in England and Wales are required change in their policy on any of the matters to produce a Governance Compliance mentioned in paragraph 1, and Statement, revise it following any material b. publish the statement as revised. change in their delegation arrangements and publish it. 4. In preparing or revising their statement an administering authority must consult such Requirements in respect of the Governance persons as they consider appropriate. Compliance Statement 1. An administering authority must prepare a 5. When they publish their statement, or the written statement setting out – statement as revised, an administering a. whether they delegate their function authority must send a copy of it to the or part of their function in relation to Secretary of State. maintaining a pension fund to a committee, a sub-committee or an officer of the authority; b. if they do so i. the terms, structure and operational procedures of the delegation; ii. the frequency of any committee or sub-committee meetings; iii. whether such a committee or sub- committee includes representatives of employing authorities (including authorities which are not Scheme employers) or members, and if so, whether those representatives have voting rights. c. the extent to which a delegation, or the absence of a delegation, complies with guidance given by the Secretary of State and, to the extent that it does not so comply, the reasons for not complying. 2. An administering authority must publish the first such statement on or before 1 March 2008.

GovernanceGovernance and ComplianceCommunications Statement Policy 97 97 Introduction

Under the Local Government Pension Membership Summary as Scheme Regulations 1997, the County Council is required to maintain a pension 31 March 2009 fund (the Fund) for its employees and those of other Scheduled Bodies within its area. The Fund is also empowered to admit the County Council 20,881 employees of certain other bodies. District/Unitary Councils 10,864 Essex County Council therefore administers Other Employing Bodies 15,112 the Fund for its own employees and those of the 14 District/Borough/Unitary Councils and numerous other bodies. In total there Total Contributors 46,857 are over 360 separate employing bodies in the Fund. The Fund excludes provision for teachers, fire-fighters and police officers, Retired Employees 27,992 for whom separate arrangements exist. Benefits are prescribed by, and the Fund is invested in accordance with, the provisions Deferred Pensioners* 26,272 of the Local Government Pension Scheme Regulations 1997. The rate of employee contributions for 2009/10 is as set out * Deferred pensioners are former employees below: who have chosen not to transfer their pension rights.

Pensionable Pay (p.a.) Rate % At the last triennial valuation of the Fund, as at 31 March 2007, Fund assets were Less than £12,600 5.5% £1.916 billion, which represented 71.4% of £12,601 - £14,700 5.8% the Fund’s liabilities. By 31 March 2009 the total value of Fund assets had increased to £14,701 - £18,900 5.9% £2.225 billion. An interim review of the Fund by the Actuary at that date which will provide £18,901 - £31,500 6.5% an update on the level of funding had is £31,501 - £42,000 6.8% awaited. £42,001 - £78,700 7.2% More than £78,700 7.5%

98 GovernanceGovernance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement

The Governance Arrangements of the Essex Pension Fund

A. Delegations (vii) To receive periodic actuarial valuation reports from the Actuary. Essex County Council has delegated its functions in relation to the maintenance of (viii) To coordinate Administering Authority the Essex Pension Fund as follows: responses to consultations by Central Government, professional and other 1. To the Essex Pension Fund Board bodies. (i) To exercise on behalf of the Council all of the powers and duties of the Council in (ix) To consider any views expressed relation to its functions as Administering by employing organisations and staff Authority of the Essex Pension Fund representatives. except where they have been specifically 2. To the Investment Steering Committee: delegated by the Council to another (i) to approve and annually review the Committee or to an officer; this will include content of the Statement of Investment the following specific functions: Principles. (ii) To monitor and oversee the work (ii) to appoint and review investment of the Investment Steering Committee Managers, Custodian and Advisors. through its quarterly reports. (iii) to assess the quality and performance (iii) To monitor the administration of the of each Investment Manager annually in Pension Scheme, including the benefit conjunction with investment advisers and regulations and payment of pensions the Chief Financial Officer. and their day to day administration including the Internal Disputes Resolution (iv) to set the investment parameters Procedures, and ensure that it delivers within which the Investment Managers can best value and complies with best practice operate and review these annually. guidance where considered appropriate. (v) to monitor compliance of the (iv) To exercise Pension Fund discretions investment arrangements with the on behalf of the Administering Authority. Statement of Investment Principles. (v) To determine Pension Fund policy (vi) to assess the risks assumed by the in regard to employer admission Fund at a global level as well as on a arrangements. manager by manager basis. (vi) To determine the Pension Fund’s (vii) to approve and review the asset Funding Strategy and approve its Funding allocation benchmark for the Fund. Strategy Statement. (viii) To submit quarterly reports on its activities to the Essex Pension Fund Board.

GovernanceGovernance and ComplianceCommunications Statement Policy 99 99 2. To the County Solicitor: behalf with solicitors and external pension to act as the administering authority for providers. the purposes of the pensions complaints c. To provide information and make the procedure. necessary arrangements for non scheduled bodies and employers to join the ECC 3. To the Chief Financial Officer: Pension Fund via an admission agreement to manage the Pension Fund including the d. To provide information to employers power to seek professional advice and to and services on all relevant pensions devolve day-to-day handling of the Fund to implications of TUPE transfers in professional advisers within the scope of outsourcing situations the Pensions Regulations. e. To ensure effective communications with Note: The Chief Financial Officer is not scheme members and pensioners, through empowered to change the managers of the Newsletters, Annual Benefit Statements Pension Fund. (for active and deferred members) and the Pension Services web site. 4. To the Executive Director of Finance: f. To ensure responses to ODPM A. to exercise the functions of the Council consultations are shared with all in relation to pensions as specified in Employing Organisations participating in Schedule 1H of the Regulations 2000. the Essex Pension Fund Note: This delegation excludes management g. To ensure all general complaints from of the Pension Fund which is the scheme members and pensioners are responsibility of the Chief Financial Officer. dealt with in a sympathetic and consistent approach The operational procedures related to these h. To ensure regular meetings are held with functions are carried out by Pension Services all Employing Organisations participating and are as follows: in the Essex Pensions Fund (at least twice a. To ensure that the fund complies with a year) the Local Government Pension Scheme i. To ensure guidance relating to Regulations 1997 (as amended), the HMRC benchmarking is followed requirements for Pension Funds and any j. To ensure discretions allowed to the other relevant statutory provision administering authority as laid down in b. To provide a comprehensive pensions the Local Government Pension Scheme administration service for members of the Regulations 1997 are determined and pensions fund. This includes the provision reviewed periodically. A policy statement of cash equivalent transfer values, pension outlining these decisions is published to sharing on divorce, estimated retirement all Employing Organisations within the benefits and information on increasing Essex Fund scheme membership. Also liaise on their k. To ensure all Employing Organisations

100 Governance Governance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement

including Essex County Council notify the Authority’s Finance and Human Resources Pensions Services of their policy statement and Customer Excellence Directorates. on the discretions allowed to Employers as laid down in the Local Government Scheme The Committee meets quarterly. Regulations 1997 l. To ensure all other responsibilities C. The Investment Steering delegated to Pensions Services by the Committee Authority are met The Investment Steering Committee is B. subject to the agreement of the Chief currently composed of 6 members of the Executive in any case involving a Director, Council - 5 Conservatives and 1 Liberal the County Solicitor, the Monitoring Democrat - together with 2 non-voting Officer or the Head of Finance, to observers. One of these observers is exercise discretion under the Local nominated by the Essex Local Government Government Pensions Regulations, the Association and represents all employers Local Government (Early Termination (including non-scheme employers) and the of Employment) (Discretionary other is nominated by UNISON and represents Compensation)(England and Wales) all scheme members within the Essex Fund. Regulations 2000 and the Teachers The Investment Steering Committee Pension Regulations or any regulations is supported in the execution of its replacing or amending the same. responsibilities by three investment advisers (two independent and one institutional) and B. The Pension Board staff from the Authority’s Finance Directorate. The Pension Board is composed of 6 members The Committee meets routinely on six of the County Council (5 Conservatives occasions each year generally in October and 1 Liberal Democrat), 1 representative or November, December, February, March, nominated jointly by Southend-on-Sea June and July. Four of those meetings are Borough Council and Thurrock Council, 1 primarily to meet with investment managers representative from Essex Police Authority, in order to review their performance but two 1 representative from Essex Fire Authority, meetings each year in February and July are 1 representative nominated by ELGA, 1 set aside for the consideration of Pension representative nominated by the Essex Fund strategy. Leaders Group and 1 representative nominated by UNISON (who represents all In addition special meetings of the Committee scheme members within the Essex Fund). are held when required for the discharge of its functions in regard to such matters as the The Pension Board is supported in the selection and appointment of investment execution of its responsibilities by staff from managers.

GovernanceGovernance and ComplianceCommunications Statement Policy 101 101 Essex Pension Fund Governance Compliance Statement

Not Partially Fully Principle Compliant Compliant Compliant A Structure (a) the Management of the administration of benefits and strategic 3 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 and deferred members) are members of either the main or secondary committee established to 3 underpin the work of the main committee (c) that where a secondary committee or panel has been established, the 3 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 3 secondary committee or panel. B Representation (a) that all key stakeholders are afforded the opportunity to be represented within the main or secondary committee structure. These include (i) employing authorities (including non-scheme employers, eg admitted 3 bodies) (ii) scheme members (including deferred and pensioner scheme members) 3 (iii) independent professional observers 3 (iv) expert advisers (on an ad hoc basis) 3 (b) that where lay members sit on a main or secondary committee, they are treated equally in terms of access to papers and meetings, training and are given full opportunity to contribute to the decision making process, 3 with or without voting rights. Comments: a)i) There are a number of representatives of employing authorities on the Pension Board and the ISC but they do not include a specific admitted bodies representative. Representation has been determined on the basis of employer contributions of which the admitted bodies contributions form a small proportion only.

102 Governance Governance and Compliance Communications Statement Policy Additional Information: Government Compliance Statement

Not Partially Fully Principle Compliant Compliant Compliant a)iii) We do not propose to appoint an independent professional observer to either the Pension Board or ISC. Instead our external auditor will be requested to undertake independent assessments of our governance arrangements. a)iv) We already employ two independent investment advisers and an investment consultant to advise the ISC. The Pensions Board will give consideration to whether it requires additional expert advice once it is constituted. C Selection and Role of Lay Members (a) that committee or panel members are made fully aware of the status, 3 role and function they are required to perform on either a main or secondary committee. D Voting (a) the policy of individual administering authorities on voting rights is 3 clear and transparent, including the justification for not extending voting rights to each body or group represented on main LGPS committees. E Training/ Facility Time/ Expenses (a) that in relation to the way in which statutory and related decisions are taken by the administering authority, there is a clear policy on training, 3 facility time and reimbursement of expenses in respect of members involved in the 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 3 secondary forum. F Meetings – Frequency (a) that an administering authority’s main committee or committees meet 3 at least quarterly. (b) that an administering authority’s secondary committee or panel meet at least twice a year and is synchronised with the dates when the main 3 committee sits.

GovernanceGovernance and ComplianceCommunications Statement Policy 103 103 Not Partially Fully Principle Compliant Compliant Compliant (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 3 represented.

Comments: (c) Not applicable. 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 3 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 3 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 3 in the way in which the scheme is governed can express an interest in wanting to be part of those arrangements.

104 Governance Governance and Compliance Communications Statement Policy Windmill at Aythorpe Roding Communications Policy Statement 2009 as at 6 May 2009

Page 107 Legal Requirements 108 Introduction 109 The Communication Arrangements of the Essex Pension Fund

106 Governance Communications and Communications Policy Statement Policy Additional Information: Communications Policy Statement

Legal Requirements Communications Policy Statement

Under the Local Government Pension 5. References in paragraphs 1 and 2 to Scheme (LGPS) Regulations all LGPS employing authorities include references Funds in England and Wales are required to non-Scheme employers. to prepare, maintain and publish a written statement setting out their policy regarding communications with members and employing authorities. Requirements in respect of the Communications Policy Statement 1. An administering authority must prepare, maintain and publish a written statement setting out their policy concerning communications with – a. members; b. representatives of members; c. prospective members; and d. employing authorities. 2. In particular the statement must set out their policy on – a. The provision of information and publicity about the Scheme to members, representatives of members and employing authorities; b. The format, frequency and method of distributing such information or publicity; and c. The promotion of the Scheme to prospective members and their employing authorities. 3. The first such statement must be published on or before 1 April 2006. 4. The statement must be revised and published by the administering authority following a material change in their policy on any of the matters referred to in paragraph 2.

GovernanceCommunications and Communications Policy Statement Policy 107 107 Introduction

This is the Communications Policy Statement of the Essex Pension Fund, which is administered by Essex County Council, the administering authority.

108 Governance Communications and Communications Policy Statement Policy Additional Information: Communications Policy Statement

The Communication Arrangements of the Essex Pension Fund

Provision of information and To Active Members: publicity about the Scheme • Each year every scheme member is provided with an Annual Benefit Statement General as at 31 March which provides a projection The Pension Fund is required under the of the benefits that the member should LGPS Regulations to produce and publish a receive from the LGPS, the membership Funding Strategy Statement and a Statement details used in the calculations, the of Investment Principles, incorporating a arrangements in place in respect of death Statement of Compliance with the Myners’ grant and details of the member’s State Investment Principles, together with Pension entitlement. the Governance Compliance Statement • Annually the Fund issues each member referred to above. All of these statements with a Newsletter setting out details of are required to be reviewed annually and developments within the LGPS and the updated where appropriate. As part of that Fund. process the Fund consults with interested • In addition Pension Services provide a parties including scheme employers. comprehensive pensions administration service for members of the pensions Annual Report and Accounts fund. This includes the provision of cash equivalent transfer values, pension sharing While the Pension Fund’s accounts form on divorce, estimated retirement benefits part of the Essex County Council Report and and information on increasing scheme Accounts which are published annually and membership. They also liaise on their made widely available, the Fund is also now behalf with solicitors and external pension required to publish a separate Report and providers. Accounts for the Pension Fund and copies of these will be provided to all scheme To Deferred Members: employers and other interested parties. Each year every deferred member is provided Website with an Annual Benefit Statement as at 31 March which gives an up to date value of • The County Council’s website has a their benefits. number of pages devoted to pensions matters. In addition to copies of the above To The Fund’s Pensioner’s: publications these include information on many different areas of pensions. Pensions All members receive at least two payslips Services also has its own website, every year, and P60’s are issued. however, this is currently under review.

GovernanceCommunications and Communications Policy Statement Policy 109 109 To employers: • Information on all relevant pensions implications of TUPE transfers in • At least twice a year the Fund issues outsourcing situations are provided to the each employer with a Communications employers involved. Newsletter. These will tend to have a • Discretions allowed to the administering specific focus such as the closure of authority as laid down in the Local accounts process or arrangements for Government Pension Scheme Regulations producing FRS 17 disclosure information 1997 are determined and reviewed but they will also include details of periodically. A policy statement outlining developments within the LGPS and the these decisions is published to all Fund. Employing Organisations within the Essex • Each year the Fund will arrange, Fund. through the services of the actuary, for the production of FRS 17 disclosure information as required by individual employers. • At least once each year the Fund holds a Forum for employers at which presentations are given by fund officers, advisers and the Fund Actuary on matters of topical interest. These have included such matters as investment performance, prospective and actual changes in LGPS regulations, funding strategy and fund valuations. In future these Forums are to be strengthened by the inclusion of representation and reports from the Pension Board and the ISC. • Pensions Services hold meetings on request with all Employing Organisations participating in the Essex Pension Fund • Responses to consultations on the LGPS are shared with all Employing Organisations participating in the Essex Pension Fund

110 Governance Communications and Communications Policy Statement Policy Additional Information: Communications Policy Statement

Promotion of the Scheme to prospective members and their employing authorities • The Essex Pension Fund, in conjunction with the Southern Shires Group, produces a Scheme Handbook that sets out details of the Scheme benefits in an easy to read format. Copies of this Handbook are provided to all new starters with Essex County Council and, through the other employers, to all other new starters who are entitled to join the Scheme. The Handbooks are also made available to employees’ representatives on request.

GovernanceCommunications and Communications Policy Statement Policy 111 111 Glossary

Accrued Interest – Interest earned on a bond Benchmark – A yardstick against which the since the last interest payment date. If the investment policy or performance of a fund stock is sold, the accrued interest is paid (gross manager can be compared. of tax) to the seller at the time of the transaction Bond – A certificate of debt issued by a in addition to the clean price of the stock. company, government, or other institutions. Active Management – A style of investment A bondholder is a creditor of the issuer and management where the fund manager aims usually receives interest at a fixed rate. Also to outperform a benchmark by superior asset referred to as fixed interest securities. allocation, market timing or stock selection (or Cash – Cash is defined as cash instruments a combination of these). (e.g. money market deposits) and cash in Actuary – An independent consultant who bank and at hand. advises the County Council on the financial Convertible Stock – Stock which gives the position of the fund. Every three years the holder the right, but not the obligation, to actuary reviews the assets and liabilities, convert all or part of the holding into another of the fund and produces the actuarial stock or stocks on specified dates and on valuation which recommends the employers specified terms. contribution rates. Corporate Governance – This is the system Additional Voluntary Contributions (AVC) – by which companies are run, and the means An option available to individuals to secure by which they are responsive to their additional pension benefits by making regular shareholders, employees and society. payments in addition to the 6% or 5% of basic earnings payable. Custody – Safe-keeping of securities by a financial institution. The custodian keeps Admission Bodies – Bodies whose staff a record of a client’s investments and may can become members of the Pension Fund also collect income, process tax reclaims and by virtue of an admission agreement made provide other services, according to the clients between the Authority and relevant body. instructions. Annualised Return – The rate of return for Currency Trading – Buying and Selling world any given period expressed as the equivalent currencies. average return per year. Deferred Pension – The pension benefit Asset Allocation – The apportionment of a payable from normal retirement age to a fund’s assets between asset classes and/or member of the Fund who has ceased to world markets. The long-term strategic asset contribute as a result of leaving employment allocation of a fund will reflect the fund’s or opting out of the pension scheme before investment objectives. In the short term, the the state retirement age. fund manager can aim to add value through tactical asset allocation decisions.

112 Essex Pension Fund Annual Report and Accounts 2008–2009 Additional Information: Glossary

Derivatives – Are financial instruments Income Distribution – Usually referred to whose value derives from an underlying unit trusts, the distribution of income to unit asset. Futures/Forwards are among the most holders in strict proportion to the number common. of units held at the ex-dividend date (units brought after this date will not generate a Dividend – The part of a company’s after dividend). tax earning which is distributed to the shareholders in the form of cash or shares. Indexed Linked – Bonds on which the The directors of the company decide how interest and ultimate capital repayment are much dividend is to be paid and when. The recalculated on the basis of changes in the dividend is neither automatic nor guaranteed Retail Price Index. for ordinary shareholders. Listing – For shares (or bonds) to be traded Emerging Equity Markets – There are about officially on a stockmarket they need to be 80 stock markets around the world of which listed. Essentially, this is an endorsement 22 markets are generally considered to be from the market authorities that the securities mature, the rest are classified under the and their issuer meet certain criteria. heading of emerging markets. Margin Account – When a futures contract Equities – Ordinary shares in UK and Overseas is first opened, an initial margin payment is companies traded on a stock exchange. made into an account held by the Clearing Shareholders have an interest in the profits House. This is intended to represent the of the company and are entitled to vote at maximum gain or loss on the contract, based shareholders’ meetings. on current market volatility Each subsequent day, every open contract is valued to reflect Fixed Interest Securities – Investments in the market movements, the scheme may be mainly government stocks, which guarantee a required to make an additional payment or fixed rate of interest. The securities represent receive a repayment. loans which are repayable at a future date but which can be traded on a recognised stock Mandate – The agreement between a client exchange in the meantime. and investment manager laying down how the fund is to be managed. May include Futures – Contracts to buy or sell specific performance targets by reference to a quantities of a commodity or financial benchmark. instrument at a specified price with delivery set at a specified time in the future. Market Value – The price at which an investment can be bought or sold at a given Gilts, Gilt-edged Securities – The familiar date. name given to sterling, marketable, securities (or bonds) issued by the British Government.

Essex Pension Fund Annual Report & Accounts 2008-2009 113 Mature Equity Markets – Countries which Specialist Management – A fund management include the United Kingdom, United States arrangement whereby a number of managers and Japan are commonly referred to as having each concentrate on a different asset class. A mature markets. These markets have an specialist fund manager is concerned primarily established economy and knowledge is freely with stock selection within the specialist asset available. class. Asset allocation decisions are taken by the trustees, their consultants or a specialist Maturity – End of the life of a fixed interest tactical asset allocation manager. security at which point it is repaid. Transaction Costs – Those costs associated Ordinary shares – Securities, which represent with managing a portfolio, notably brokerage an ownership, interest in a company. costs and taxes. Passive Management – A style of investment Transferee Admission Bodies – An external management that seeks to attain performance body contracted to provide services or assets equal to market or index returns. in connection with the exercise of a function of Property unit trusts (PUTS) – Pooled the Local Authority. investment vehicles that enable investors Transfers to/from other schemes – These are to hold a stake in a diversified portfolio of sums paid to or received from other pension properties. schemes and relate to the current value of Resolution Bodies – Scheme employers with past contributions which transfer with a the power to decide if an employee or group of member when changing employment. employees can belong to the scheme. Unit Trust – A pooled fund in which investors Retirement under the “Rule of 85” – Where can buy and sell units on an on-going basis. an employer consents to the early payment of Unquoted Securities – Shares which are dealt retirement benefits after age 50, the member’s in the market but which are not subject to any age and pensionable service totalling at least listing requirements and are given no official 85, and where other reasons for retirement do status. not apply. Unrealised Gains/(losses) – The increase/ Return – The total gain from holding an (decrease) at year-end in the market value of investment over a given period, including investments held by the fund since the date of income and increase (decrease) in market their purchase. value. Scheme Employers – Local Authorities and other similar bodies whose staff automatically qualify to become members of the pension fund.

114 Essex Pension Fund Annual Report and Accounts 2008–2009 Little Oakley Beach This information is issued by Essex County Council For further information on issues relating to Fund Investments and Accounts please contact: Martin Quinn Head of Investments Finance Directorate Phone: (01245) 431412 Fax: (01245) 436904 Email: [email protected] If you have any queries on the benefits or costs of membership of the Pension Fund please contact: Jody Evans Pensions Services Manager Pensions Services Phone: (01245) 431912 Fax: (01245) 493439 Email: [email protected] Or you can write to us at: Essex County Council Investment Team PO Box 11 County Hall Chelmsford Essex CM1 1LX

The information contained in this document can be translated, and/or made available in alternative formats, on request.

Published September 2009. DS09 1901

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