Pension Fund Annual Report for the Year Ended 31 March 2020
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Pension Fund Annual Report for the Year Ended 31 March 2020 1 Pension Fund Annual Report for the Year Ended 31 March 2020 Contents Glossary of Terms and Abbreviations .............................................................................................. 3 Introduction ...................................................................................................................................... 5 Key Fund Statistics .......................................................................................................................... 7 Governance ..................................................................................................................................... 8 Financial Performance ................................................................................................................... 24 Investment ..................................................................................................................................... 28 Funding .......................................................................................................................................... 54 Scheme Administration .................................................................................................................. 57 Statement of Accounts ................................................................................................................... 67 Auditor’s Opinion .......................................................................................................................... 121 Appendix 1: Governance Policy and Compliance Statement ....................................................... 123 Appendix 2: Communications Policy Statement ........................................................................... 132 Appendix 3: Investment Strategy Statement ................................................................................ 138 Appendix 4: Funding Strategy Statement .................................................................................... 148 Appendix 5: Actuarial Valuation Report 2019............................................................................... 193 Appendix 6: Employee and Employer Contributions .................................................................... 222 How to get in touch with us .......................................................................................................... 228 2 Glossary of Terms and Abbreviations Abbreviation Term ABS Annual Benefit Statement AUM Assets Under Management AVCs Additional Voluntary Contributions Bps Basis Points Charge CARE Career Average Revaluated Earnings CIPFA Chartered Institute of Public Finance Accountants CPI Consumer Price Inflation CPS Communications Policy Statement DCC Derbyshire County Council DPF, Pension Fund or Fund Derbyshire Pension Fund ESG Environmental, Social and Governance FRC Financial Reporting Council FRS Financial Reporting Statement FSS Funding Strategy Statement GMP Guaranteed Minimum Pension HMRC Her Majesty’s Revenues & Customs IAS International Accounting Standard IIMT In-House Investment Management Team IFRS International Financial Reporting Standard ISS Investment Strategy Statement LAPFF Local Authority Pension Fund Forum LGIM Legal & General Investment Management LGPS Local Government Pension Scheme LGPS Central LGPS Central Pool LGPS Central Partner Fund The LGPS pension funds of Cheshire, Derbyshire Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Worcestershire and West Midlands; the collective owners of 3 the LGPS Central Pool and the shareholders of LGPS Central Limited LGPS Central JC LGPS Central Pool Joint Committee LGPS Central PAF LGPS Central Pool Practitioners’ Advisory Forum LGPS Central SF LGPS Central Pool Shareholders Forum LGPSC LGPS Central Limited MiFID II Markets in Financial Instruments Directive MHCLG Ministry of Housing Communities and Local Government P&IC or Committee Pensions and Investments Committee PAS Pensions Administration Strategy RPI Retail Price Inflation PRIIPs Packaged Retail and Insurance-based Investment Products SAAB Strategic Asset Allocation Benchmark SAB LGPS Shadow Advisory Board SERPS State Earnings-Related Pension Scheme SLA Service Level Agreement SORP Statement of Recommended Practice SSC Shared Service Centre TCFD Taskforce for Climate-related Financial Disclosures TpR The Pensions Regulator 4 Introduction Derbyshire County Council is the administering authority for the Local Government Pension Scheme (LGPS) within Derbyshire, investing and administering Derbyshire Pension Fund (Pension Fund/Fund) on behalf of over 300 employers and over 100,000 memberships. The policies and strategies set out in this report have been agreed by Derbyshire’s Pensions and Investments Committee and aim to support the delivery of the Fund’s objectives. Derbyshire Pension Board has continued to contribute to the development of policies and strategies during 2019/20 in its role of assisting the Council with the governance and administration of the Pension Fund. The final stages of 2019-20 were dominated by the Covid-19 pandemic. At the end of January, the World Health Organisation declared that coronavirus was a global health emergency. By the end of March, the scale of the global crisis had become clearer and in large parts of the world social distancing and lockdown had become part of daily life. In the UK, administrative staff delivering essential public services such as the payment of benefits, were classified as key workers. Guidance issued by the Pensions Regulator advised pensions funds to concentrate on: paying members’ benefits; retirement processing; bereavement services; and any processes needed to ensure benefits are accurate. Supported by the Council’s ICT department, the Pension Fund Team adapted swiftly and efficiently to working at home and the critical activities of the Fund continued to be carried out, supporting the delivery of key services. A small number of people continued to work at County Hall in a Covid- secure environment, in order to keep the Fund’s Pensions Helpline open and to deal with other tasks that could not be dealt with remotely. The efforts of all the members of the Team, and of the Fund’s employers and suppliers during this period has ensured that services to members have been maintained during this challenging period. The Fund’s objective is to deliver secure, accurate and efficient administration of the LGPS, ensuring that sufficient assets are available to meet benefit payments for the Fund’s members both now and in the future. Assets are accumulated in the Pension Fund through a combination of contributions from employees and employers within the scheme and from investment returns. At the end of March 2020, the value of the Fund’s assets had fallen to just over £4.6bn (2018-19, £4.9bn). Supportive monetary policy helped to deliver positive investment returns in the first three quarters of 2019-20 despite concerns about lower economic growth, the fall-out from the US-China Trade War, the uncertainty surrounding Brexit and increasing political concerns in the run up to the US Presidential Election. Global equity indices achieved all-time highs in February 2020 before the spread of the coronavirus hit markets sharply in the final quarter of the financial year, resulting in a negative investment return of 4.7% for the year ended 31 March 2020 (2018-19, 5.6%). The benefits of diversification were well demonstrated in 2019-20, with the UK equity market losing around 19% in value, whilst losses in major overseas equities markets ranged from 2%-13% in sterling terms and government bonds delivered positive returns. Subsequent to the period-end, equity and credit markets have recovered strongly. The Fund outperformed its benchmark by 0.7% in 2019-20. During the year, when a further 43 new employers were onboarded, the Pension Fund Team successfully used Altair, the new pension administration system implemented in the first quarter of 2019, and started to work on the rollout of the associated i-Connect system, which will enable 5 employers to automate the submission of their data. The Fund is committed to continually improving the services offered to its members and 2020-21 will see the launch of a Member Self-Service solution designed to allow members to access their real-time pension details on-line. An actuarial valuation of the Fund’s assets and liabilities as at 31 March 2019 was undertaken during the financial year and reported that the Pension Fund’s funding ratio had increased from 87% at 31 March 2016 to 97% at 31 March 2019, primarily reflecting strong investment returns over the preceding three years. The funding level is the ratio of assets to liabilities at the valuation date, providing a high-level snapshot of the funding position at a particular date. As part of the valuation process, the Fund’s Actuary reviewed funding plans and set contribution rates for the Pension Fund’s participating employers for the period from 1 April 2020 to 31 March 2023. The Fund continues to work closely with its partners in the LGPS Central Pool, the LGPS pension funds of Cheshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Worcestershire and West Midlands, overseeing the development and delivery of LGPS Central Limited (LGPSC), the company established to manage investments on behalf of the participating pension funds. In February 2020, the Fund transitioned its legacy UK Corporate Bond portfolio into an LGPSC Global Investment Grade Bond pooled