PENSION FUND ANNUAL REPORT & STATEMENT OF ACCOUNTS 2019/2020 ANNUAL REPORT & STATEMENT OF ACCOUNTS 2019/2020 47430-20 ANNUAL REPORT & STATEMENT OF ACCOUNTS 2019/2020 PENSION FUND Page Introduction 2 Three Year Profile of Statistics of the Fund 3 Part A - Administration Report 4 Membership 5 Premature Retirement – Pension Costs 5 Administration 6 Legislative Changes 14 Wales Pension Partnership 18 Local Pension Board - Annual Report 20 Annual Governance Statement 23 Part B - Statement of Responsibilities 53 Independent Auditors Statement 54 Statement of Accounts 2019/20 55 Notes to the Accounts 58 Part C - Investment Report 94 Budget Forecast 94 Investment Strategy 95 Investment Fund Management 9956 Valuation of Investments 96 Distribution of Investments 97 Investment Returns 99 Market Commentary 100 Investment Performance of the Fund 100 Environmental & Social Governance Policy 101 Part D - Actuarial Report 102 Actuarial Position 102 Valuation Assumptions 103 Certificate of the Actuary 108 Appendices – Investment Strategy Statement 119 Funding Strategy Statement 126 Governance Statement 148 Communications Policy 174 ESG Policy 186 Glossary 198 PENSION1 FUND 1 Introduction The purpose of the Annual Report is to provide information for contributors and other interested parties on the management and administration of the Pension Fund during the year. The report for 2019/20 includes the accounts for the year, an outline of the City & County Council Pension Fund together with details of membership and changes to basic scheme details that have either taken place during the year or are proposed for the future. In addition, the report includes the Actuarial Statement applicable for the year and a report on Investments and Investment performance for the year. The accounts included in the report have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2019/20 which is based upon International Financial Reporting Standards (IFRS), as amended for the UK public sector. The key statistics for the Fund are illustrated in the three year profile of the Fund on page 3. 2 Arthurs Stone, Gower 2 ANNUAL REPORT & STATEMENT OF ACCOUNTS 2019/2020 PENSION FUND Introduction Three Year Profile of Statistics of the Fund The purpose of the Annual Report is to provide information for contributors and other interested parties on the management and administration of the Pension Fund 2017/18 2018/19 2019/20 during the year. £’000 £’000 £’000 The report for 2019/20 includes the accounts for the year, an outline of the City & County Council Pension Fund together with details of membership and changes to basic scheme details that have either taken place during the year or are proposed Income for the future. In addition, the report includes the Actuarial Statement applicable for the year and a report on Investments and Investment performance for the year. Contributions (Net) 87,698 93,400 99,701 The accounts included in the report have been prepared in accordance with the Transfer Values (Net) - - - Code of Practice on Local Authority Accounting in the United Kingdom 2019/20 which is based upon International Financial Reporting Standards (IFRS), as amended for the UK public sector. The key statistics for the Fund are illustrated in the three year profile of the Fund on Expenditure page 3. Pensions and Benefits 77,409 82,079 82,172 (Net) Transfer Values (Net) 1,261 1,099 2,828 Other (Net) 7,245 11,568 9,808 Net new money 1,783 (1,346) 4,893 £’000 £’000 £’000 Net Asset Value at 31 1,916,510 2,044,038 1,988,022 March Number of Contributors at 31 March 19,671 19,888 20,050 Number of Pensioners at 31 March 12,763 13,229 13,610 2 Number of Deferred 11,394 11,874 11,838 Members at 31 March ANNUAL REPORT & STATEMENT OF ACCOUNTS 2019/2020 PENSION3 FUND 3 PART A ADMINISTRATION REPORT The Pension Fund is governed by Regulations exercised by powers conferred under the Superannuation Act 1972, and includes employees Swansea Council, Neath Port Talbot County Borough Council and other bodies listed in Appendix 1. Pension administration continues to adapt to the increased complexity of the Scheme, resulting from the change in the LGPS with effect from 1st April 2014, from a Final Salary scheme, to a Career Average Revalued Earnings (CARE) scheme and other overriding legislation. The benefits payable and the employees’ rates of contribution are set out in the Local Government Pensions Scheme Regulations 2013 (as amended) and the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014. The rates of contribution by employing authorities are based on actuarial valuation and are set out in Part D. The principal benefits provided by the Fund are: • Retirement pensions • Tax free lump sums on retirement • Lump sum death benefits • Survivors’ pensions (including Children) • Deferred benefits, refunds or transfers of pension rights • Pensions and lump sums payable on premature retirement due to ill health and early retirement/redundancy. Pensions are increased under the Pensions Increase Act each April, in line with the official rate of inflation, the Consumer Price Index (CPI) as at the previous 30 September. The rate for the year ending last September was 1.7% to applied from 06 April 2020 to qualifying pensions The benefits are statutory and are effectively guaranteed by Parliament. They do not depend on investment performance but the actuary will take account of how well the investments perform in setting the employers’ contribution rate in the actuarial valuation. The LGPS 2014 Scheme has not impacted on the provisions for elected member pensions in Wales as their pension arrangement continues on a career average revalued earning basis. 4 4 ANNUAL REPORT & STATEMENT OF ACCOUNTS 2019/2020 PENSION FUND Membership Membership of the Fund is largely comprised of: • Active members - contributors who are still working and paying money into the Fund • Deferred members – former members who have elected to retain their pension rights in the Scheme until such a time as they become payable • Pensioner members – in receipt of their pension • Survivor members (including children) – in receipt of a pension in respect of a former member Membership of the Scheme is automatic and is open to all employees irrespective of the number of hours or weeks worked. Where an employee is not eligible for automatic entry, they may elect to join the Scheme if they so wish. All employees also have the right to choose a personal pension as an alternative or in addition to membership of the LGPS. Membership of the Fund continues to grow and the latest statistics at Appendix 1 show the total membership of the Fund in 2019/20. Membership is monitored to assess trends and events, publications and employer engagement are utilised to ensure a robust membership. Premature Retirement - Pension Costs (a) Ill Health Retirement Employers do not have to pay separately for the Pension Fund costs for ill health, as the cost is included in the employer’s rate as a percentage for such cases; however, the actuarial cost of ill health retirees from current service is calculated for reporting purposes and for the past two years this was: 2018/19 2019/20 Ill-Health Retirement No. of Cost No. of Cost Cases £ Cases £ City & County of Swansea 29 1,806,264 34 2,152,295 Neath Port Talbot CBC 11 1,086,188 24 1,506,343 Tai Tarian 4 1,278,688 2 75,532 Gower College 2 188,049 1 11,249 University of Wales TSD 1 192,736 - - NPTC Group - 0 2 155,170 Total 47 4,551,925 63 3,900,589 ANNUAL REPORT & STATEMENT OF ACCOUNTS 2019/2020 PENSION5 FUND 5 (b) Early Retirement Employers are required to take immediate account of the costs of the financial strain on the Pension Fund where they grant early retirement. The actuarial cost of early retirements for the past two years was as follows: Early Access to Pension Employing Body 2018/19 2019/20 No. of Cost No. of Cost Cases £ Cases £ City & County of Swansea 86 1,741,109 28 908,995 Neath Port Talbot CBC 33 668,729 20 323,064 NPTC Group 1 14,135 1 4,644 University of Wales Trinity St - - 6 171,219 Davids POBL Group 7 99,604 - - Rathbone - 2 66,999 Total 127 2,523,577 57 1,474,921 Administration The Pension Section comprises of 16 permanent full-time equivalent staff, including the Pensions Manager and undertakes all aspects of the day-to-day administration of the Fund e.g. setting up new members; making changes to members’ records as they occur; calculating deferred benefits; transfers of pension rights in to and out of the LGPS and paying benefits at retirement. The operational staff undertake regular training to ensure they remain up-to-date with their knowledge and understanding of the LGPS and a number of them have also completed or are in the process of undertaking their professional qualification in Pension Administration and Management. The Pensioner Payroll is administered through the Swansea Council payroll system and pensions are paid monthly, in arrears, on the last banking day of each month. IT systems The Pension Section administers the LGPS through the pension administration system altair, which also includes document imaging and workflow procedures. All member documentation is scanned on to the system and indexed to the appropriate member record. i-Connect has been in use for several years with 90.86% of the Fund’s active membership now fully implemented. 6 ANNUAL REPORT & STATEMENT6 OF ACCOUNTS 2019/2020 PENSION FUND (b) Early Retirement The Pension Regulator continues to push towards full electronic data submissions from all employers. With this in mind the Fund has signed up to the new i-Connect Employers are required to take immediate account of the costs of the commercial model and invests/promotes the use of an electronic interface to our financial strain on the Pension Fund where they grant early retirement.