HERTFORDSHIRE COUNTY COUNCIL
INVESTMENT COMMITTEE
TUESDAY 15th JUNE 2010 AT 10 AM
Agenda Item No:
13
PENSION FUND ANNUAL REPORT AND ACCOUNTS 2009/10
Report of the Director of Resources and Performance
Author of the report: Lyn Stainton Telephone: 01992 555394
1
Purpose of the Report
1.1. To provide the Investment Committee with the unaudited Pension Fund Annual
Report and Accounts for 2009/10 for consideration and comment before they are
considered by the Audit Committee. This is attached at Appendix A.
2
Summary
2.1 The 2003 Accounts and Audit Regulations require member approval of the
2009/10 Statement of Accounts (including the Pension Fund) by the 30 June 2010.
2.2 During 2009/10 the value of the Pension Fund increased by £543m, from
£1,640m in 2008/09 to £2,183m. The market value of investments increased by
£467m during the year and the overall investment return for the year was 32.6%,
compared to a benchmark of 39.2%.
2.3 Overall, the number of members in the Pension Fund has increased by 1,675
members from 70,900 at 31 March 2009 to 72,575 at 31 March 2010. Of the
total increase of 1,675 members, there were increases in active members of
152, pensioners of 764 and deferred members of 759. The number of
employers in the Pension Fund has increased by 2 to 197 at 31 March 2010.
2.4 Reports on internal control have been received from all Investment Managers and
the Fund’s Custodian and no issues for concern have been raised by their auditors.
2.5 In order to comply with International Standards of Accounting, the Audit
Commission requires that those charged with governance confirm the respective
roles of the Investment Committee and the Audit Commission in the
management of the Pension Fund. A draft letter is provided in Appendix B for
consideration by the Investment Committee.
3
Conclusion
3.1 The Investment Committee is asked to scrutinise and comment on
the Pension Fund Annual Report and Accounts for 2009/10. The Investment
Committee’s comments will be passed to the Audit Committee for them to
consider when approving the Accounts at their meeting on 24 June 2010.
3.2 The Pension Fund accounts will then be subject to audit and once certified will
be published and circulated to all employers and other interested parties.
1
3.3 The Investment Committee is asked to approve the draft letter to the Audit
Commission so that this may be considered by the Audit Committee at their
meeting on 24 June 2010.
4
Background
4.1 The 2003 Accounts and Audit Regulations require member approval of the
2009/10 Statement of Accounts by 30 June 2010. This is in the remit of the
Audit Committee. Extracts of this report and accounts will be included within the
County Council’s Statement of Accounts submitted to the Audit Committee for
approval on 24 June 2010.
4.2 The Audit Commission undertakes a separate audit of the Pension Fund
Accounts and will produce an Annual Governance Report based on their
findings. This acknowledges the governance role of the Investment Committee
to review and scrutinise the Pension Fund Accounts prior to approval by the
Audit Committee. The Annual Governance Report will be presented to the
Investment Committee by the auditors in September.
5
2009/10 Pension Fund Accounts
5.1 During 2009/10, the value of the Pension Fund increased by £543m (33.1%)
from £1,640m at 31 March 2009 to £2,183m at 31 March 2010. The overall
investment return for the year was 32.6% compared to the benchmark of 39.2%.
5.2 This increase of £543m is made up of a net addition to the Pension Fund from
dealing with members of £26m and an increase £517m return on investments.
The £517m return on investments is made up of an increase in the market value
of investments of £467m, investment income £61m offset by £3m tax on income
and £8m of investment manager fees.
5.3 The increase in the market value reflects a recovery in the global stock markets
following the economic downturn during 2008/09. The global economic
conditions prevailing in 2009/10 are discussed in the Review of World Markets in
the Annual Report and Accounts.
5.4 Overall, the number of members in the Pension Fund has increased by
1,675 members from 70,900 at 31 March 2009 to 72,575 (2.4%) at 31 March 2010.
Of the total increase of 1,675 members, there were increases in active members
of 152, pensioners of 764 and deferred members of 759. The number of
employers in the Pension Fund has increased by 2 to 197 at 31 March 2010.
5.5 Total contributions received from scheme employers remained stable at £149m.
Of the £149m total contributions, there was a reduction of £358k in employee
contributions and a reduction of £1.2m in employer contributions largely relating
to a reduction in lump sum payments during the year for deficit funding. These
reductions were offset by an increase £1.1m in the value of transfers from other
schemes.
5.6 There was an increase in benefit payments to pensioners of £9.4m (9.9%) from
£94.6m in 2008/09 to £104m in 2009/10 reflecting the increased volume of
pensioners in 2009/10.
2
5.7 There was an increase in payments relating to leavers of £10.5m (175%) from
£6m in 2008/09 to £16.6m in 2009/10 which largely relates to the value of
transfers to other schemes. This represents a higher volume of cases and the
processing of stockpiled cases which had been held pending the publication of
factors from the Government Actuary’s Department.
5.8 Administrative expenses increased by £70k from £1,895m in 2008/09 to
£1.965m in 2009/10. Additional fees were incurred in relation to Mercers’
investment consultancy fees for new property investment manager and specific
projects to cleanse membership data prior to the 2010 valuation.
6
Annual Report
6.1
The Annual Report summarises the main aspects of the Pension Fund and is
split into four sections – Scheme Administration, Administering Authority
Report, Financial Statements and Investment Report.
6.2
Scheme Administration
This section provides a background to the Scheme, describes how it is funded
and details the main benefits for members.
6.2.2 It also provides a summary of changes to scheme employers during 2009/10.
The total number of scheme employers has increased by 2 from 195 at 31
March 2009 to 197 at 31 March 2010. Of the 197 employers, there were 160
active employers and 37 non-active employers. Non-active employers of the
Pension Fund no longer have active members contributing to the Pension
Fund but have pensioners who are, or will be, paid from the Pension Fund.
6.2.3 The two new employers were admitted to the Pension Fund due to
outsourcings from the District and Borough Councils. Three existing
employers now have additional Admission Agreements following changes to
existing outsourcing arrangements.
6.3
Administering Authority Report
This section outlines how the Hertfordshire Pension Fund is governed and
managed and includes the Pension Fund’s:

Governance Policy and Compliance Statement which was approved by the
Investment Committee in March 2009;

Administration Strategy approved by the Investment Committee in
December 2009; and

Communication Policy Statement approved by the Investment Committee in
June 2009;
6.3.1 The Administering Authority Report also includes the results of the 2007
actuarial valuation of the Pension Fund which found that the market value of
the Pension Fund’s assets at the valuation date of 31 March 2007 was
£2,152.2m, representing 84.7% of the Pension Fund’s accrued liabilities. A
summary of membership to the Scheme is provided in this section showing the
distribution of Scheme members across the employer categories. The
changes in Scheme membership of 1,675 members largely relate to increased
pensioners of 764 and an increase in deferred members of 759, illustrating the
gradual maturing of the Pension Fund.
3
6.4
Financial Statements
This section provides includes the 2009/10 Pension Fund Accounts discussed
in section 5 to this report.
6.5
Investment Report
This section sets out the context for investment and the background against
which investments took place.
6.5.1 It includes the Statement of Investment Principles which was approved by the
Investment Committee in March 2010. The Statement was updated with
current information to reflect Government guidelines and provides information
on the extent to which the Pension Fund complies with principles of good
governance and investment practice set out in the Myners review of
Institutional Investment in the UK.
6.5.2 An analysis of investment distribution against the Investment Policy is provided
in this section.
6.5.3 The section on investment performance shows that the return over 2009/10 as
32.6%, against a benchmark of 39.2% reflecting economic recovery during
2009/10 following the global crisis during 2008/09. Looking at the longer term
performance, the annual return of the Pension Fund over ten years was 3.2%
which places it in the 61st percentile of local authorities.
7
Statements of Internal Control
7.1
The Investment Managers and the Custodian are required to submit an annual
report on the internal controls operating within their organisations. The report
set out the organisations’ risk controls covering areas such as ensuring client
agreements are followed, transactions are properly authorised and records are
complete and accurate.
7.2
Reports have been received from all Investment Managers and the custodian
and all have been signed off by their auditors following sample testing, and no
issues have been raised.
7.3
A review of these reports has also been undertaken by Internal Audit and they
conclude that there are no issues to be reported.
8
Letter of Compliance with International Auditing Standards
8.1
In order to comply with International Auditing Standards, the Audit Commission
requires that those charged with governance confirm the respective roles of the
Investment Committee and the Audit Commission in the management of the
Pension Fund.
8.2
A suggested form of letter is provided in Appendix B for consideration by the
Investment Committee. If this is approved then the letter should be
recommended to the Audit Committee and signed jointly by the Chairmen of
the Investment Committee and the Audit Committee.
8.1
The Audit Commission requests that the signed letter is provided by 30 June 2010.
4
APPENDIX A:
Pension Fund Annual Report and Accounts
Hertfordshire Pension Fund
2009/2010
Annual Report and Accounts
5
Contents
Page
Introduction
Foreword
Financial Summary
3
3
Scheme Administration
Background to the Scheme
Funding
Benefits
5
6
7
Administering Authority Report
Management
Governance Policy and Compliance Statement
Administration
Communication
Actuarial Valuation Report
Membership
10
11
18
21
23
25
Financial Statements
Statement of Responsibilities
Independent Auditor’s Report
Statement of Accounting Policies
Fund Account
Net Assets Statement
Notes to the Accounts
27
28
30
34
35
36
Investment Report
Investment Management
Statement of Investment Principles
Investment Policy
Review of World Markets
Investment Performance
49
51
61
63
65
Appendices
Certified 2007 Actuarial Valuation Contribution Rates
List of Employing Bodies
Funding Strategy Statement
68
69
72
Glossary
96
Hertfordshire Pension Fund
Annual Report and Accounts 2009/10
Introduction

Foreword

Financial Summary
Page 3 of 106
Foreword
This report provides information for employers and other interested parties on
how the Hertfordshire Pension Fund (“Pension Fund”) has been managed
during the year 1 April 2009 to 31 March 2010.
There were 197 employers and 28,485 contributing members of the Pension
Fund at 31 March 2010. During the year the value of the Pension Fund
increased by £543m to £2,183m. The overall investment return for the year
was 32.6% compared to the Pension Fund’s benchmark of 39.2%.
This report summarises the main features of the Pension Fund, starting with a
brief outline of the Local Government Pension Scheme (“Scheme”). The
Administering Authority Report then outlines the management and
administrative arrangements for the Pension Fund. This is followed by the
financial statements for the year 2009/10 with comparative information for the
previous year. Finally, the Investment Report sets out the background against
which investment took place, the Pension Fund’s Investment Policy and the
level of performance achieved.
Financial Summary
The table below provides a summary of the Pension Fund accounts for the year
2009/10 and a graph showing the movement of the value of the Pension Fund
over the last five years.
2008/09
£’000s
Value of the Pension Fund at 1 April
2009/10
£’000s
2,066,275 1,639,566
Net additions/(withdrawals) from dealing with members
46,911
26,358
Net returns on investments
(473,620)
517,058
Increase/(Decrease) in the Pension Fund during the year
(426,709)
543,416
Value of the Pension Fund at 31 March
1,639,566 2,182,982
Value of Pension Fund (£m)
2500
2000
1500
1000
500
0
31.03.06
31.03.07
31.03.08
31.03.09
31.3.2010
Page 4 of 106
Scheme Administration
 Background to the Scheme
 Funding
 Benefits
Page 5 of 106
Background to the Scheme
Legal Framework
The Scheme is a statutory scheme, established by an Act of Parliament. A new
set of regulations governing the Scheme was introduced from 1 April 2008. They
are:



Local Government Pension Scheme (Benefits, Membership and
Contributions) Regulations 2007 (as amended)
Local Government Pension Scheme (Administration) Regulations 2008 (as
amended)
Local Government Pension Scheme (Transitional Provisions) Regulations
2008
(as amended)
The Scheme is run by Administering Authorities in accordance with these
regulations. In Hertfordshire the Administering Authority is Hertfordshire
County Council.
Eligibility
The Scheme is available to all employees of local authorities other than
teachers, firefighters and police officers for whom separate arrangements
apply. Employees are able to join the Scheme if they have a contract of
employment of three months or more duration.
Other specified bodies providing public services are included by statute or may
apply for admission.
Employers
At 31 March 2010 there were 197 employers in the Pension Fund. Participating
employers can be scheme employers or admitted bodies, as defined below:

Scheme employers. There are two types of scheme employers listed in the
Scheme regulations. Employees of organisations such as the County
Council and District and Borough Councils are able to join the Scheme as
of right. Employees of other organisations, such as Parish and Town
Councils are able to join the Scheme if the employer designates that they
can.

Admitted bodies are voluntary, charitable and, in certain circumstances,
private sector organisations carrying out local authority contracts, where
staff can become members of the Scheme by virtue of an Admission
Agreement between the Pension Fund and the relevant body. At 31 March
2010 there were 61 admission bodies participating in the Pension Fund.
A full list of employing bodies in the Pension Fund is shown on pages 69-71.
Page 6 of 106
Funding
The Scheme is a funded scheme, financed by contributions from employees
and employers and by earnings from investments. The Pension Fund has
published a Funding Strategy Statement – see page 72, which sets out the
Pension Fund’s strategy for meeting employers’ pension liabilities. The aim of
the funding strategy is to ensure the long-term solvency of the Pension Fund
and to ensure that sufficient funds are available to meet all benefits as they fall
due for payment.
Employees’ Contributions
From 1 April 2008 employees paid contributions at a rate depending on their
whole time equivalent pensionable salary. The rates and salary bandings
applicable during 2009/10 are shown in the table below.
Band
Range
Contribution
Rate
1
£0 - £12,600
5.5%
2
More than £12,600 up to £14,700
5.8%
3
More than £14,700 up to £18,900
5.9%
4
More than £18,900 up to £31,500
6.5%
5
More than £31,500 up to £42,000
6.8%
6
More than £42,000 up to £78,700
7.2%
7
More than £78,700
7.5%
The increase in contribution rate for the ex-manual worker employees currently
paying 5% will be phased in so that by April 2011 they will be paying the
appropriate rate under the above table.
Employers’ Contributions
Employers’ contributions are payable at rates specified by the Pension Fund’s
Actuary following each triennial valuation. Rates are adjusted to reflect any
surplus or shortfall in the Pension Fund (see page 23 for further details).
Investment Income
The cash, which is not immediately required to pay pensions and other
benefits, is invested and provides an additional source of income for the
Pension Fund.
Page 7 of 106
Benefits
The Scheme is a defined benefit final salary scheme which guarantees to
provide benefits which are a specified fraction of a Scheme member’s “finalpay”. Benefits are not affected by variations in investment performance.
Full details of benefits payable are explained in the Scheme booklet which is
available from the Pension Fund website at www.hertsdirect.org/pensions.
The Local Government Pension Scheme (Benefits, Membership and
Contributions) Regulations 2007 (as amended) introduced a new benefit
package for the Scheme, the main provisions of which are set out below.
Age of Retirement
The normal retirement date for Scheme members is 65. The Scheme also
makes provisions for the early payment of benefits from age 55 in certain
circumstances (50 for Scheme members who joined before 1 April 2008 until
2010).
Retirement Benefits
For membership after 1 April 2008, the annual pension is based upon final
pensionable pay multiplied by 1/60th for each year of Scheme membership.
The final pensionable pay is the wage or salary on which contributions were
paid over the last 12 months of service. Up to 25% of the capital value of
benefits can be taken as a lump sum at a 12:1 commutation rate, i.e. £12 lump
sum for every £1 of pension given up.
For membership accrued to 31 March 2008, members will receive an annual
pension based on final pensionable pay multiplied by 1/80 th for each year of
Scheme membership and a lump sum of three times annual pension. Members
can also exchange part of their pension for additional lump sum.
Additional Benefits
The Scheme offers several ways for members to increase their benefits:

Additional Regular Contributions: Purchase of additional Scheme pension in
multiples of £250 up to a maximum of £5,000.

Contributions to a money purchase Additional Voluntary Contribution
scheme (AVC), provided by the Standard Life Assurance Company or the
Equitable Life Assurance Society.
Members with added years contracts at 1 April 2008 will be permitted to
continue with their existing contracts.
Page 8 of 106
Ill Health Retirement
A three tier ill health retirement provision is available depending on how likely a
member is to obtain gainful employment. Benefits are calculated in the same
way as for normal retirements, with an enhancement for members in tiers 1 and
2 to compensate for premature retirement. Members in tier 3 who are likely to
enter gainful employment within a reasonable period must undergo a medical
review after 18 months.
Death in Service
A lump sum death grant of three years final pensionable pay is payable.
Pensions are also payable to surviving spouses, civil partners, nominated cohabiting partners and dependant children based on the former employee’s
membership and final pay.
Death After Retirement
Spouses’, civil partners’, nominated co-habiting partners’ and dependant
children’s pensions are payable based on the former employee’s final
pensionable pay or pension. In addition, if death occurred before the pension
has been paid for ten years, the balance will be paid as a lump sum.
The benefits detailed above are guidelines only and members should
apply to Serco Solutions, the Scheme Administrator, for individual
estimates of benefits payable.
Page 9 of 106
Administering Authority Report
 Management
 Governance Policy and Compliance Statement
 Administration
 Communication
 Actuarial Valuation Report
 Membership
Page 10 of 106
Management
Hertfordshire County Council (the “County Council”) is the Administering
Authority of the Pension Fund and administers the Scheme on behalf of the
participating scheme employers.
The Local Authority (Functions & Responsibilities) (England) Regulations 2000,
state that functions relating to the Scheme are the responsibility of the full
Council. The County Council has delegated these functions to the Investment
Committee and to the County Council’s Chief Finance Officer. A protocol has
been agreed to ensure this parallel delegation operates effectively.
The membership of the Investment Committee is made up of eight County
Council members and three District Council representatives. A staff
representative nominated by UNISON is invited to attend meetings as an
observer.
The County Council has published a Governance Policy and Compliance
Statement which is set out on the following pages. This was approved by the
Investment Committee on 18 March 2009. The statement covers policy on
delegations to the Investment Committee, frequency of meetings of the
Investment Committee, training and terms of reference and describes the
Pension Fund’s compliance with statutory guidance issued by the Secretary of
State for Communities and Local Government.
Investment Committee Membership
County Council Members
N K Brook (Chairman)
S Quilty (Vice Chairman)
P J Bibby
P V Goggins
T W Hone
S Markiewicz
C A Mitchell
R G Parker
Substitute Members
D Andrews
Vacancy
District Council Representatives
K A Ayling
J Lloyd
Vacancy
Staff Representative (UNISON)
R Norton
Since April 2009 there have been a number of changes to the membership of
the Investment Committee. Those members serving during 2009/10 but not
listed above were I H Laidlaw-Dickson, E Singam, B N W Hammond, R S
Clements, R Mays (all County Council Members who left in May 2009). D E
Lloyd (County Council Member who left in November 2009) and S J Taylor and
J Mansfield (District Council Representatives who left in May 2009 and January
2010 respectively).
Page 11 of 106
Governance Policy and Compliance Statement
This statement is prepared in accordance with regulation 31 of the Local
Government Pension Scheme (Administration) Regulations 2008 (as
amended), which require Administering Authorities to maintain and publish a
statement on its governance policy and its compliance with statutory guidance
issued by the Secretary of State for Communities and Local Government.
Legal Framework
The terms of the Scheme are contained in three sets of regulations:



Local Government Pension Scheme (Benefits, Membership and
Contributions) Regulations 2007 (as amended)
Local Government Pension Scheme (Administration) Regulations 2008
(as amended)
Local Government Pension Scheme (Transitional Provisions) Regulations
2008 (as amended)
They apply to employees of local authorities other than teachers, fire-fighters
and police officers. Other specified bodies providing public services are
included by statute or may apply for admission.
Responsibility
The Administering Authority for the Scheme in Hertfordshire is Hertfordshire
County Council. Management of the Scheme is a non-executive function.
The Local Authority (Functions & Responsibilities) (England) Regulations 2000,
state that the functions relating to the Scheme are the responsibility of the full
Council. The County Council has delegated these functions to an Investment
Committee, whose members can make decisions without reference to the full
Council.
In parallel to this, the County Council has delegated functions relating to the
Pension Fund to the County Council’s Chief Finance Officer, as specified in
Annex 3 (Responsibility for Functions) of Hertfordshire County Council’s
Constitution.
Page 12 of 106
Terms of Reference
The Investment Committee and Chief Finance Officer are responsible for the
functions set out in the following regulations:





Local Government Pension Scheme (Benefits, Membership and
Contributions) Regulations 2007 (as amended)
Local Government Pension Scheme (Administration) Regulations 2008
(as amended)
Local Government Pension Scheme (Transitional Provisions) Regulations
2008 (as amended)
Local Government Pension Scheme (Management and Investment of
Funds) Regulations 2009
Local Government (Early Termination of Employment) (Discretionary
Compensation) Regulations 2006 (as amended)
To clarify this parallel delegation, the Investment Committee has agreed a
protocol setting out the division of responsibility between itself and the Chief
Finance Officer. This states that the Investment Committee is responsible for
policy matters including:









Asset allocation decisions.
Appointing (and, when necessary, dismissing) Investment Managers.
Setting Administering Authority discretions.
Monitoring the performance of Investment Managers and the investments
made.
Setting and reviewing the overall investment strategy of the Pension Fund.
Approval and review of:
- Statement of Investment Principles
- Funding Strategy Statement
- Governance Policy Statement
- Communications Strategy Statement
Appointing (and, when necessary, dismissing) Investment Consultants.
Reviewing the cost of investment management.
Setting performance objectives for the Pension Fund.
All other operational decisions to implement these policies are delegated to the
County Council’s Chief Finance Officer.
Representation
The Investment Committee is made up of eight County Council members (in
proportion to the political representation of the full Council), three (non-voting)
District Council representatives elected by the Hertfordshire Local Government
Association and three substitute members (one for each political party).
County Council members, as elected members of the Administering Authority,
have voting rights in accordance with the Local Government (Committee and
Political Groups) Regulations 1990 SI No 1553 5 (1)(d).
A staff representative, nominated by UNISON, is invited to attend meetings as
an observer.
Page 13 of 106
The County Council’s Chief Finance Officer attends meetings to advise the
Investment Committee.
An annual meeting is held for all employers in the Pension Fund to inform them
of decisions made and allow them to ask questions directly to the Investment
Committee, Officers and Pension Fund advisers.
Committee Meetings and Training
The Investment Committee meets once a quarter.
An annual workshop, run by the Pension Fund’s Investment Consultant, is held
for members of the Investment Committee to provide members with on-going
training on pension and investment matters and to provide a forum to discuss
and debate issues in more detail. Induction training is offered to all new
members of the Investment Committee.
Compliance with Statutory Guidance
The following table, Pension Fund Governance Compliance Statement,
provides a summary of how the Pension Fund complies with the statutory
guidance issued by the Secretary of State for Communities and Local
Government.
Page 14 of 106
Pension Fund Governance Compliance Statement
Principle
Compliance and Comments
Structure
a)
The management of the administration
of benefits and strategic management
of fund assets clearly rests with the
main committee established by the
appointment 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 underpin the
work of the main committee.
Full
c)
That where a secondary committee or
panel has been established, the
structure ensures effective
communication across both levels.
Not applicable
d)
That where a secondary committee or
panel has been established, at least
one seat on the main committee is
allocated for a member from the
secondary committee or panel.
Not applicable
Full
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, e.g.
admitted bodies):
Partial
The County and District
Councils, whose staff make up
77% of the active membership,
are represented, but no other
organisations are currently. All
employers are invited to attend as
observers if they wish and to attend
the annual employers’ meeting.
Page 15 of 106
Principle
ii)
scheme members (including
deferred and pensioner scheme
members);
iii) independent professional
observers, and
iv) expert advisors (on an ad-hoc
basis)
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, with or
without voting rights
Compliance and Comments
Full
UNISON has a place on the
Investment Committee to represent
all Scheme members.
No
The statutory guidance envisages
“an independent professional
observer could be invited to
participate in the governance
arrangements to enhance the
experience, continuity, knowledge,
impartiality and performance of
committees”. There is no such
member of the Investment
Committee at present.
Full
Mercers, the Pension Fund’s
Investment Consultant, attend the
Investment Committee when
appropriate.
Full
Selection and Role of Lay Members
a)
That committee or panel members are
made fully aware of the status, role and
function they are required to perform on
either a main or secondary committee.
b)
That at the start of any meeting,
committee members are invited to
declare any financial or pecuniary
interest related to specific matters on
the agenda.
Full
Full
Page 16 of 106
Principle
Compliance and Comments
Voting
a)
The policy of individual administering
authorities on voting rights is clear and
transparent, including the justification
for not extending voting rights to each
body or group represented on main
LGPS committees.
Full
The policy is clear that only County
Council members can vote. The
Investment Committee believes
that the voting arrangements are
justified, because in practice the
vast majority of decisions are
reached by consensus.
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, facility
time and reimbursement of expenses in
respect of members involved in the
decision-making process.
Full
Training is provided internally
and offered to all Investment
Committee members.
Reimbursement of expenses is
covered by the members’
allowance schemes in their
authority.
b)
That where such a policy exists, it
applies equally to all members of
committees, sub-committees, advisory
panels or any other form of secondary
forum.
Full
c)
That the administering authority
considers the adoption of annual
training plans for committee members
and maintains a log of all such training
undertaken.
No
This area will be developed in the
future for all members of the
Investment Committee.
Meetings (frequency/quorum)
a)
That an administering authority’s main
committee or committees meet at least
quarterly.
Full
b)
That an administering authority’s
secondary committee or panel meet at
least twice a year and is synchronised
with the dates when the main
committee sits.
Not applicable
Page 17 of 106
Principle
c)
Compliance and Comments
That administering authorities who do
Full
not include lay members in their formal An annual employers’ meeting is
governance arrangements, provide a
held to update employers on
forum outside of those arrangements by Pension Fund matters.
which the interests of key stakeholders
can be represented.
Access
a)
That subject to any rules in the
council’s constitution, all members of
main and secondary committees or
panels have equal access to committee
papers, documents and advice that falls
to be considered at meetings of the
main committee.
Full
Scope
a)
That administering authorities have
taken steps to bring wider scheme
issues within the scope of their
governance arrangements.
Full
Issues relating to the funding and
benefit structure are reported to the
Investment Committee.
Publicity
a)
That administering authorities have
published details of their governance
arrangements in such a way that
stakeholders with an interest in the way
in which the scheme is governed, can
express an interest in wanting to be
part of those arrangements.
Full
The Governance Policy and
Compliance Statement is published
in the Annual Report and Accounts
on the Pension Fund website.
Page 18 of 106
Administration
Hertfordshire County Council is the Administering Authority of the Pension
Fund and administers the Scheme in conjunction with the contracted business
services listed below.
Scheme Administrator providing scheme administration services for
members in conjunction withy County Council staff
Serco Solutions
Investment Managers during 2009/10 investing funds on behalf of the
Pension Fund
AllianceBernstein Ltd.
Baillie Gifford & Co.
BlackRock Investment Management (UK) Ltd.
Capital International Ltd (until May 2008)
Deutsche Asset Management (UK) Ltd.
Harbour Vest
JPMorgan Asset Management (UK) Ltd.
Jupiter Asset Management Ltd.
Permira
RCM (UK) Ltd.
Schroder Investment Management Ltd. (until May 2008)
Standard Life Investments Ltd.
TTP Venture Managers Ltd.
Property unit trusts are managed by Hertfordshire County Council. From 1
April 2010 property unit trusts will be managed by CB Richard Ellis Investors.
Custodian maintaining and managing investment records in relation to
Pension Fund investments
BNY Mellon Asset Servicing B.V.
Consulting Actuary providing actuarial services
Hymans Robertson
Investment Consultant providing investment advice
Mercer Limited
Corporate Governance Adviser providing voting services
RREV (Research Recommendations and Electronic Voting)
Performance Measurement Consultants providing independent reporting
on investment performance
The WM Company
Page 19 of 106
AVC Providers for members wishing to increase benefits
The Equitable Life Assurance Society
Standard Life Assurance Company
External Auditor
M Hodgson, District Auditor, Audit Commission
Key contacts
Administering Authority
Scheme Administrator
For Investments
For Benefits and Administration
Patrick Towey
Herts Finance Service
Hertfordshire County Council
County Hall
Pegs Lane
Hertford
SG13 8DQ
Taryn Mutter
Serco Solutions
County Hall
Pegs Lane
Hertford
SG13 8TN
01992 555148
pensions.team@hertscc.gov.uk
01992 555466
hcc.pensions@serco.com
Legal Adviser
Kathryn Pettitt,
Chief Legal Officer
Hertfordshire County Council
Administration Strategy
The Pension Fund has published an Administration Strategy (“Strategy”) that
sets out the quality and performance standards expected of the Pension Fund
and its scheme employers.
The Strategy has been prepared in accordance with regulation 65(1) of the
Local Government Pension Scheme (Administration) Regulations 2008. This
enables a Local Government Pension Scheme Fund to prepare an
administration strategy to support the delivery of a high quality administration
service.
The Strategy was produced in consultation with scheme employers, was
approved by the Pension Fund Investment Committee on 2 December 2009
and was implemented on 1 January 2010.
Page 20 of 106
The Strategy outlines the responsibilities of the Pension Fund and scheme
employers, defines the required performance standards and provides details of
sanctions for non-compliance.
During 2010/11, the Pension Fund Investment Committee will consider key
performance indicators which will be used to measure and report on
performance in quarterly reports to the Investment Committee.
Page 21 of 106
Communication
The Pension Fund has published a Communication Policy Statement which
sets out how it communicates with employers and representatives of
employers, Scheme members and prospective Scheme members.
Communication Policy Statement
This Statement is prepared in accordance with regulation 31 of the Local
Government Pension Scheme (Administration) Regulations 2008 (as
amended), which requires an Administering Authority to prepare, maintain and
publish a statement on its policy for communicating with members and
employing authorities. It was approved by the Pension Fund Investment
Committee on 17 June 2009.
The Pension Fund currently has 197 employers and approximately 28,485
Scheme members. This Statement sets out the communication methods with
each group.
Employers
The following methods are used to communicate with employers in the Pension
Fund:

Annual General Meeting
All employers are invited to listen to presentations on topical issues and to
raise questions about the Pension Fund.

Quarterly Newsletters and Ad Hoc Bulletins
All employers receive quarterly newsletters which provide information,
advice and guidance about administering the Scheme. Ad hoc bulletins are
also published to advise employers about specific issues that require
attention or action, e.g. changes to Scheme regulations.

Annual Report and Accounts
A copy of this publication is sent to all employers and is available from the
Pension Fund’s website, www.hertsdirect.org/pensions.

Hertfordshire Chief Financial Officers’ Meeting
The Chief Finance Officer for Hertfordshire County Council keeps in contact
with the District and Borough Councils through these meetings and keeps
them up to date with pension matters.

Investment Committee Reports and Minutes
These are available on request to employers who wish to see them.
They are also available from the Hertfordshire County Council website,
http://www.hertsdirect.org/yrccouncil/civic_calendar/investcomm/.
Page 22 of 106

Advice and Help
County Council staff and Serco Solutions (the Pension Fund’s outsourced
Scheme Administrator) are available to give advice on the telephone, by
letter or by email.
Scheme Members
The following methods are used to communicate with Scheme members:

Telephone Helpline
Serco Solutions, provide a telephone helpline for all enquiries from Scheme
members on any aspect of their pension arrangements.

Annual Benefit Statements
All active and deferred Scheme members receive an Annual Benefit
Statement setting out the level of benefits that have been built up, along
with a forecast of benefits at retirement.

Internet
The Pension Fund’s website provides information about Scheme benefits.

Information Letters
Information about changes in regulations is provided to employees via their
employers in a range of media, including email and letter.

Payslips
All pensioners receive at least three payslips each year and messages are
included whenever there is new information to be communicated.
Prospective Scheme Members
The methods used to ensure that prospective members are aware of the
Scheme and its benefits are:

Job Advertisements
Many employers advertise the benefits of the Scheme in their job
advertisements.

Scheme Booklet
All new starters in the employing organisations in the Pension Fund are
provided with a Scheme booklet which summarises the benefits available
from the Pension Fund.

Induction Sessions
Employers in the Pension Fund are encouraged to include pensions in their
induction sessions for new starters.
Page 23 of 106
Actuarial Valuation Report
The Pension Fund is financed by contributions from employees and employers
and by investment income earned on accumulated funds not immediately
required for the payment of benefits and expenses. The Actuary reports
periodically to the County Council on the Pension Fund’s solvency and to
identify the contributions payable by employers to the Pension Fund in the
future to meet the funding objectives of the Pension Fund.
The Pension Fund has published a Funding Strategy Statement (see page 72),
which sets out the Pension Fund’s strategy for meeting employers’ pension
liabilities. The aim of the funding strategy is to ensure the long-term solvency
of the Pension Fund and to ensure that sufficient funds are available to meet all
benefits as they fall due for payment. The Actuary takes account of the Funding
Strategy Statement when advising on the level of employer contributions to be
paid.
Actuarial Valuation as at 31 March 2007
Actuarial valuations are made at three yearly intervals. The last valuation of
the Pension Fund was undertaken as at 31 March 2007 in accordance with
regulation 77 of the Local Government Pension Scheme Regulations 1997 (as
amended)* to determine employers’ contribution rates for the financial years
2008/09 to 2010/11.
The Rates and Adjustments Certificate issued by the Actuary as at 31 March
2007 showed that the required level of contributions for the Pension Fund as a
whole was 21.0% of members’ pensionable pay. This common contribution
rate is the amount which should be paid to the Pension Fund by all bodies
whose employees contribute to it so as to secure its solvency. The common
contribution rate is adjusted for each employer to reflect certain circumstances
that are specific to individual employers.
The required level of contributions to be made to the Pension Fund by the
County Council with effect from 1 April 2010 is 20.6% of pensionable payroll.
The rates payable by participating City, District and Borough Councils with
effect from the same date are set out on page 68.
These rates of contributions are the rates which, in addition to the contributions
paid by the members, are sufficient to meet:

100% of the liabilities arising in respect of service after the valuation date;

Plus an adjustment over a period of 20 years** to reflect the shortfall of the
value of each participating employer’s notional share of the Pension Fund’s
assets compared with 100% of its accrued liabilities, allowing, in the case of
members in service, for future pay increases.
Page 24 of 106
The market value of the Pension Fund’s assets at the valuation date of 31
March 2007 was £2,152.2 million and represented 84.7% of the Pension Fund’s
accrued liabilities.
The contribution rates have been calculated using the projected unit method
which calculates the cost of benefits accruing to existing employee members
over the year following the valuation date allowing for all expected future pay
and pension increases***.
The main actuarial assumptions were as follows:
Rate of return on investments:
5.9% per annum
(1.4% per annum above the yield on
fixed interest Government Bonds)
Rate of general pay increases:
4.7% per annum
Rate of price inflation:
3.2% per annum
*
Replaced from 1 April 2008 with the Local Government Pension Scheme
(Administration) Regulations 2008 (as amended).
**
This period varies according to the type of employer as per the Pension
Fund’s Funding Strategy Statement.
***
Except those who no longer admit new entrants, where the attained age
method was employed. This is the assessed cost of benefits accruing to
existing employee members over their expected future working life
allowing for all expected future pay and pension increases.
Page 25 of 106
Membership
The graph below shows the changes in membership over the last five years.
Membership of Fund over 5 years at 31 March
35000
30000
Contributors
25000
20000
Pensioners
15000
10000
Deferred Benefits
5000
0
2006
2007
2008
2009
Contributors
Pensioners
Deferred Benefits (former contributors)
Total
2010
31 March 2009
28,333
19,223
23,344
70,900
31 March 2010
28,485
19,987
24,103
72,575
The 2008/09 membership figures have been updated from last year’s Annual
Report following late notifications of changes of membership to ensure that the
most accurate figures available are reported.
Changes in contributor members during the year*
Admissions
3,377
Retirements
711
Leavers
2,502
* The movement in membership is not fully explained by the numbers above
due to the timing of transfer payments.
The table below shows an analysis of the membership of the Pension Fund
between the Administering Authority, Admitted Bodies and other Scheme
Employers at 31 March 2010.
Administering Authority
Admitted Bodies
Other Scheme Employers
Contributors
Pensioners
Deferred
Benefits
18,581
1,709
8,195
10,402
1,149
8,436
15,205
903
7,995
Page 26 of 106
Financial Statements
 Statement of Responsibilities
 Auditor Report
 Statement of Accounting Policies
 Fund Account
 Net Assets Statement
 Notes to the Accounts
Page 27 of 106
Statement of Responsibilities
Hertfordshire County Council’s Responsibilities
Hertfordshire County Council is the Administering Authority (Authority) of the
Pension Fund. The Authority is required to:

make arrangements for the proper administration of the financial affairs of
the Pension Fund and to secure that one of its officers has responsibility for
the administration of those affairs. In this Authority that officer is the Chief
Finance Officer;

manage the affairs of the Pension Fund to secure economic, efficient and
effective use of the Pension Fund’s resources and safeguard its assets.
The Chief Finance Officer’s Responsibilities
The Chief Finance Officer is responsible for the preparation of the Pension
Fund’s statement of accounts in accordance with proper practices as set out in
the Chartered Institute of Public Finance and Accountancy (CIPFA) and Local
Authority (Scotland) Accounts Advisory Committee (LASAAC) Code of Practice
on Local Authority Accounting in the United Kingdom. The Chief Finance
Officer is required to present fairly the financial position of the Pension Fund at
the accounting date and its income and expenditure for the year ended 31
March 2010.
In preparing this statement of accounts, the Chief Finance Officer has:

selected suitable accounting policies and then applied them consistently;

made judgements and estimates that were reasonable and prudent;

complied with the Code of Practice.
The Chief Finance Officer has also:

kept proper accounting records which were up to date;

taken reasonable steps for the prevention and detection of fraud and other
irregularities.
Page 28 of 106
Independent Auditor’s Report
to the Members of Hertfordshire County Council
Insert to be provided by the Audit Commission at conclusion of audit
Page 29 of 106
Page 30 of 106
Page 31 of 106
Statement of Accounting Policies
General Principles
The accounts have been prepared in accordance with the provisions of Chapter
2 of the Statement of Recommended Practice Financial Reports of Pension
Schemes 2007, the Code of Practice on Local Authority Accounting in the
United Kingdom 2008 and the Local Government Pension Scheme
(Administration) Regulations 2008 (as amended).
The accounts summarise the transactions and net assets of the Pension Fund.
They do not take account of liabilities to pay pensions and other benefits in the
future. The accounts should therefore be read in conjunction with the Actuarial
Valuation Report on pages 23-24 which takes account of such liabilities.
Basis of Preparation
The accounts have been prepared on an accruals basis, with the exception of
transfer values which have been treated on a cash basis as the amount
payable or receivable by the Pension Fund is not determined until payment is
actually made and accepted by the recipient.
Valuation of Assets
Investments, including foreign currencies, are shown in the accounts at market
value, determined as follows:






Quoted securities are valued at bid price at the close of business on the
balance sheet date.
Unit Trust and managed fund investments (including property) are valued
at the closing bid price if both bid and offer prices are quoted by the
respective Investment Managers. If only a single price is quoted,
investments are valued at the closing single price.
Unquoted securities are valued having regard to the latest dealings,
professional valuations, the advice of directors, asset values and other
appropriate financial information.
Indirect private equity investments are interests in limited partnerships and
are stated at the partnership’s estimate of fair value. For private equity
limited partnerships there is usually a time delay in receiving information
from the private equity Investment Managers. The valuations shown in the
Net Assets Statement for these investments are the latest valuations
provided to the Pension Fund, adjusted for cash movements between the
valuation date and the balance sheet date.
Futures contracts are valued at the exchange price for closing out the
contract at the balance sheet date. This represents the unrealised profit or
loss on the contract.
Forward foreign exchange contracts are stated at fair value which is
determined as the gain or loss that would arise from closing out the
contract at the balance sheet date by entering into an equal and opposite
contract.
Page 32 of 106


Investment assets and liabilities include cash balances held by the
Investment Managers and debtor and creditor balances in respect of
investment activities as these form part of the net assets available for
investment.
Rights issues are processed on ex-date. If the value of the rights on ex
date is 15% or more of the value of the underlying security, cost is allocated
from the parent to the rights. If the value is less than 15%, the rights are
allocated at zero cost.
Foreign Currency Translation
All investments are shown in sterling. The market value of overseas securities
and cash is shown in sterling based on exchange rates applicable at 31 March
2010.
Gains and losses on exchange arising from foreign currency investment and
cash balances are included within the Fund Account for the year.
Investment Management and Administrative Expenses
The external Investment Managers’ fees are agreed in the respective mandates
governing their appointment. Fees are based on the market value of the
portfolio under management.
In previous years where an Investment Manager’s fee note has not been
received for the final period, an estimate based on the market value of their
mandate as at the end of the year is used for inclusion in the Fund Account. In
2009/10, no fees were based on such estimates.
Contributions
In previous years where participating employers have not submitted certified
returns of contributions payable by the due date for preparation of these
Accounts, an estimate of these contributions has been made. In 2009/10, no
contributions were based on such estimates.
Investment Income
Investment income in the form of interest on fixed interest stocks and cash
deposits and announced dividends on equity securities is accrued as at the
financial year end.
The Pension Fund is exempt from UK income tax on interest received and from
capital gains tax on the proceeds of investments sold. Tax is deducted from
dividends paid on UK equities. This is not recoverable. Income from overseas
investments suffers a withholding tax in the country of origin, unless exemption
is permitted. The Pension Fund has been granted exemption from US taxation
and in some instances partial recovery of other withholding tax is possible.
Provision is made for the estimated sums to be recovered and income grossed
up accordingly.
Page 33 of 106
VAT
The Pension Fund is exempt from VAT and is therefore able to recover such
deductions. Investment management and administrative expenses are
therefore recognised net of any recoverable VAT.
Acquisition Costs
Acquisition costs of investments are included in the purchase price.
Additional Voluntary Contribution Investments
The County Council has arrangements with the Standard Life Assurance
Company and the Equitable Life Assurance Society to enable employees to
make Additional Voluntary Contributions (AVCs) to enhance their pension
benefits. AVCs are invested separately from the Pension Fund’s main assets
and the assets purchased are specifically allocated to provide additional
benefits for members making AVCs. As these contributions do not form part of
the Pension Fund’s investments, the value of AVC investments are excluded
from the Pension Fund’s Net Assets Statement in accordance with regulation
4(2)(c) of the Local Government Pension Scheme (Management and
Investment of Funds) Regulations 2009 (SI 2009 No 3093).
Security Lending
The Local Government Pension Scheme (Management and Investment of
Funds) Regulations 2009 permit the Pension Fund to lend up to 35% of its
securities from its portfolio of stocks to third parties in return for collateral. The
Pension Fund has set a limit of 20% of the total Fund value. The securities on
loan are included in the Net Assets Statement to reflect the Pension Fund’s
continuing economic interest of a proprietorial nature in these securities.
Page 34 of 106
Fund Account
Note
Dealings with members, employers and
others directly involved in the Scheme
Contributions receivable
Members
Employers
Transfers in from other schemes
2008/09
£’000
2009/10
£’000
1
31,956
107,148
10,326
149,430
31,598
105,930
11,449
148,977
(74,826)
(17,644)
(81,120)
(20,754)
(2,077)
(94,547)
(2,187)
(104,061)
(25)
(8)
(6,044)
(6,077)
(24)
(12)
(16,558)
(16,594)
(1,793)
(102)
(0)
(1,895)
(1,914)
(51)
(0)
(1,965)
46,911
26,358
69,017
(3,410)
(6,544)
(532,683)
61,556
(3,134)
(7,997)
466,633
Net return on investments
(473,620)
517,058
Net increase/(decrease) in the Fund
during the year
(426,709)
543,416
Opening net assets of the Scheme
2,066,275
1,639,566
Closing net assets of the Scheme
1,639,566
2,182,982
Benefits payable
Pensions
Commutation of pensions and lump
sum retirement benefits
Lump sum death benefits
Payments to and on account of leavers
Refunds of contributions
State scheme premiums
Transfers out to other schemes
Administrative expenses and other
payments
Administrative expenses
Interest
Bad debts
2
3
4
5
Net Additions (withdrawals) from
dealing with Members
Returns on investments
Investment income
Taxation
Investment management expenses
Change in market value of investments
6
7
8
Page 35 of 106
Net Assets Statement
2008/09
£’000
2009/10
£’000
124,835
115,321
134,511
192,419
407,893
562,026
620,423
835,592
Index linked securities
Public sector
Other
66,904
5,643
74,009
8,251
Pooled investment vehicles
Property
Unit trusts
Other managed funds
68,439
10,928
94,851
74,556
18,160
94,524
54
2,213
39
3,059
Cash deposits
97,114
106,437
Other investment balances
33,226
32,172
(2,691)
(3,796)
(30,858)
1,555,898
(25,751)
2,164,605
86,393
(2,725)
83,668
22,142
(3,765)
18,377
1,639,566
2,182,982
Note
Investment Assets
Fixed interest securities
Public sector
Other
9
Equities
UK
Overseas
Derivatives
Futures
Forward foreign exchange contracts
Investment liabilities
Derivative contracts
Forward foreign exchange contracts
10
10
9
10
Other investment balances
Total investment asset/liabilities
Current assets
Current liabilities
Total current assets/liabilities
Net assets of the Scheme at 31 March
11
12
The accounts summarise the transactions and net assets of the Pension Fund.
They do not take account of liabilities to pay pensions and other benefits in the
future.
M Parsons, Chief Finance Officer
30 September 2010
Page 36 of 106
Notes to the Accounts
1. Contributions Receivable
Members
Normal
Additional
Employers
Normal
Augmentation
Deficit funding
Total
2008/09
£’000
2009/10
£’000
31,179
777
31,956
30,886
712
31,598
62,236
455
44,457
107,148
76,414
623
28,893
105,930
139,104
137,528
Members’ additional contributions represent contributions from members to
purchase additional years of membership or pension in the Scheme.
Employers’ normal contributions represent the ongoing contributions paid
into the Pension Fund by employers in accordance with the Rates and
Adjustments Certificate, issued by the Pension Fund’s Actuary. These
reflect the cost of benefits accrued by current members over the year.
Employers’ augmentation represents additional contributions from
employers towards the cost of enhancing members’ benefits.
Employers’ deficit funding includes:
 £22,519,927 past service adjustment which represents the additional
contributions required from employers towards the deficit where an
employer’s funding level is less than 100%, as per the Rates and
Adjustments Certificate. The deficit recovery period varies depending on
the individual circumstances of each employer. For statutory bodies,
the Pension Fund normally targets the recovery of any deficit over a
period not exceeding 20 years. For transferee Admission Bodies the
deficit recovery period would be the shorter of the end of the employer’s
contract or the expected future working lifetime of the remaining Scheme
members. Further information can be found in the Pension Fund’s
Funding Strategy Statement on page 72 and accessible from
www.hertsdirect.org/pensions.

£1,122,813 paid by employers in excess of the minimum contribution
levels required by the Actuary in the Rates and Adjustments Certificate,
Page 37 of 106

£5,250,347 towards early retirements representing the actuarial strain on
the Pension Fund where a member retires early and is entitled to
immediate access to their benefits.
Contributions received are further analysed by type of employer:
Administering Authority
Other Scheduled Bodies
Admitted Bodies
2008/09
£’000
64,968
62,794
11,342
2009/10
£’000
64,975
61,175
11,378
Total
139,104
137,528
2. Transfers In From Other Schemes
The transfers in figure represent the payments received by the Pension
Fund in relation to individual members’ transfers of benefits into the
Pension Fund. No amounts were received during the year for group
transfers from other schemes.
3. Benefits Payable
Administering Authority
Other scheduled bodies
Admitted bodies
2008/09
£’000
41,535
46,843
6,169
2009/10
£’000
44,744
51,413
7,904
Total
94,547
104,061
4. Transfers Out to Other Schemes
The transfers out figure represents the payments made by the Pension
Fund in relation to individual members’ transfers of benefits out of the
Pension Fund. No amounts were paid during the year for group transfers
to other schemes.
Page 38 of 106
5. Administrative Expenses
The Local Government Pension Scheme (Management and Investment of
Funds) Regulations 2009, allow the Administering Authority to charge
pension administration expenses direct to the Pension Fund. The
expenses listed below include a charge made for the work carried out on
the Pension Fund by Hertfordshire County Council’s Finance Service on
pension administration and investment matters. Expenses incurred by the
Pension Fund’s Investment Managers are listed in note 7.
Administration and processing
Actuarial fees
Audit Fees
Statutory
Other
Legal and other professional fees
Total
2008/09
£’000
1,665
49
2009/10
£’000
1,736
123
50
2
27
43
2
10
1,793
1,914
6. Investment Income
a) Analysis of Investment Income
Income from fixed interest securities
Public Sector
Other
Dividends from equities
UK
Overseas
Income from index linked securities
Public Sector
Income from pooled investment
vehicles
Property
Unit trusts
Other managed funds
Interest on cash deposits
Other investment income
Securities lending
Commission recapture
Class action proceeds
Underwriting commission
Other
Total
2008/09
£’000
2009/10
£’000
6,010
6,791
4,734
10,345
24,380
19,402
22,277
15,346
869
2,667
4,587
70
467
6,045
4,212
0
443
779
266
1
108
2
19
394
0
280
76
4
69,017
61,556
Page 39 of 106
b) Securities Lending
The Pension Fund has an arrangement with its Custodian to lend securities
from within its portfolio of stocks to third parties in return for collateral.
Collateralised lending generated income of £393,514 for 2009/10
(£265,638 for 2008/09). This is included within investment income in the
Fund Account. At 31 March 2010, £55.8 million worth of stock (2.56% of
the Pension Fund) was on loan, for which the Pension Fund was in receipt
of collateral worth £59.3 million.
7. Investment Management Expenses
The Pension Fund’s Investment Managers are remunerated on the basis of
fees calculated as a percentage of total assets under management. Some
Investment Managers also have a performance related fee, payable where
performance exceeds the performance target, as set out in Appendix C to
the Statement of Investment Principles on page 60.
The Pension Fund’s assets are held in custody by an independent
custodian. The Custodian is responsible for the safekeeping of the Pension
Fund’s financial assets, the settlement of transactions, income collection,
tax reclamation and other administrative actions in relation to the Pension
Fund’s investments.
The Pension Fund subscribes to the performance measurement service of
The WM Company. An analysis of the Pension Fund’s performance is
shown in the Investment Performance section on pages 65-66.
Administration and management
Refund of investment management fees
Custody
Performance measurement services
Total
2008/09
£’000
6,016
0
496
32
6,544
2009/10
£’000
7,487
0
480
30
7,997
Page 40 of 106
8. Change in Market Value of Investments
Fixed Interest
Public Sector
Other
Equities
UK
Overseas
Index linked
Public Sector
Other
Pooled vehicles
Property
Unit trusts
Managed funds
Derivatives
Futures
Forward foreign
exchange
Cash deposits
Subtotal
Other investment
balances
Total investment
assets/liabilities
£’000
£’000
£’000
124,835
115,321
370,436
94,429
(357,138)
(44,827)
(3,621)
27,495
134,511
192,419
407,893
562,026
353,851
849,385
(308,400)
(831,764)
167,078
255,944
620,423
835,592
66,904
5,643
24,195
4,737
(21,895)
(3,258)
4,806
1,128
74,009
8,251
68,439
10,928
94,851
0
1,220
9,847
0
(2,080)
(8,071)
6,117
8,091
(2,103)
74,556
18,160
94,524
54
(478)
436
(19,208)
(430)
9,713
(21)
9,236
39
(737)
97,114
32,144
(15,303)
1,553,530 1,721,473 (1,583,453)
£’000
Value at
31/03/10
Value at
31/03/09
Purchase
s at cost
and
derivativ
e
payment
Sale
s
proceeds
and
derivativ
e
receipts
Change
in market
value
a) Analysis of Change in Market Value of Investments
£’000
(7,518)
106,437
466,633 2,158,184
2,368
6,421
1,555,898
2,164,605
The change in market value of investments during the year comprises all
increases and decreases in the market value of investments held at year
end and profits and losses realised on the sale of investments during the
year. Derivative receipts and payments represent the realised gains and
losses on futures contracts and forward foreign exchange contracts during
the year. The sale proceeds and derivative receipts for cash deposits
represent the net movement in cash held by the Investment Managers
during the year. The change in market value of cash results from gains and
losses on foreign currency cash transactions.
b) Transaction Costs
Transaction costs are included in the cost of purchases and sale proceeds.
Transaction costs include costs charged directly to the Pension Fund such
as fees, commissions, stamp duty and other fees. Transaction costs
incurred during the year amounted to £4.8 million (£5.5 million in 2008/09).
In addition to these costs, indirect costs are incurred through the bid-offer
spread on investments within pooled investment vehicles. The amount of
indirect costs is not separately provided to the Pension Fund.
Page 41 of 106
9. Investment Analysis
a) Analysis of Investments at Market Value
2008/09
£’000
Investment Assets:
Fixed Interest Securities
UK Public Sector
Overseas Public Sector
UK other
Overseas other
Equities
UK quoted
UK unquoted
Overseas quoted
Overseas unquoted
Index linked securities
UK Public Sector
UK other
Overseas other
Pooled investment vehicles
Property
UK
Unit trusts
UK
Overseas
Managed funds
UK
Overseas
Derivatives
Futures
Forward foreign exchange contracts
Cash deposits
Other investment balances
Amounts receivable from the sale of investments
Investment income due
UK and overseas recoverable tax due
Investment Liabilities:
Derivative contracts
Forward foreign exchange contracts
Other investment balances
Amounts payable for the purchase of investments
Non recoverable tax payable
Total
2009/10
£’000
63,040
61,795
83,286
32,035
240,156
86,854
47,657
154,398
38,021
326,930
407,893
0
558,592
3,434
969,919
620,423
0
835,474
117
1,456,014
66,904
3,245
2,398
72,547
74,009
2,748
5,503
82,260
68,439
74,556
2,676
8,252
3,953
14,207
9,702
85,149
174,218
13,958
80,565
187,239
54
2,213
2,267
39
3,059
3,098
97,114
106,437
21,855
9,683
1,688
33,226
19,104
11,521
1,548
32,172
(2,691)
(3,796)
(29,132)
(1,726)
(30,858)
(24,147)
(1,604)
(25,751)
1,555,898
2,164,605
Page 42 of 106
b) Commitments
As at 31 March 2010, the Pension Fund had a commitment of a further
£68.2 million to private equity limited partnerships, based on exchange
rates at the balance sheet date (£80.5 million at 31 March 2009).
c) Analysis by Investment Manager
The value of investments held by each Investment Manager together with
investments in private equity limited partnerships on 31 March were as
follows:
31 March 2009
Investment Manager
Market
value
£’000
AllianceBernstein Ltd.
230,492
Baillie Gifford & Co.
168,590
BlackRock Investment
315,329
Management (UK) Ltd.
Jupiter Asset Management Ltd.
182,022
In House Property Unit Trust
109,423
Fund
Harbour Vest
47,870
Permira
4,996
Standard Life Investments
40,489
TTP Venture Managers Ltd.
1,613
Capital International
0
Schroders
0
Deutsche Asset Management
145,086
(UK) Ltd.
JPMorgan Asset Management
152,428
(UK) Ltd.
RCM (UK) Ltd.
156,128
Residual funds from previous
portfolios
1,432
Subtotal: Funds externally
managed
1,555,898
Funds held at Hertfordshire
County Council
Total
%
31 March 2010
Market
value
£’000
%
14.8%
10.8%
20.3%
338,940
258,142
425,243
15.7%
11.9%
19.6%
11.7%
7.0%
273,824
119,425
12.7%
5.5%
3.1%
0.3%
2.6%
0.1%
0.0%
0.0%
9.3%
52,012
5,404
29,832
1,598
0
0
220,458
2.4%
0.2%
1.4%
0.1%
0.0%
0.0%
10.2%
9.8%
226,559
10.5%
10.1%
211,739
9.8%
0.1%
1,426
0.1%
100%
2,164,605
100%
83,676
18,377
1,639,574
2,182,982
The market values in the table above include the value of investments,
cash and net current assets held by each Investment Manager at 31 March.
The funds held by Hertfordshire County Council include net current assets
and cash required to manage the payment of benefits and collection of
contributions.
Residual funds from previous portfolios represent residual cash and
investment income still due to the portfolios previously run by the outgoing
Investment Managers following the restructure of the Pension Fund during
the year.
Page 43 of 106
d) Encumbrance of Assets
The Custodian has a lien over the Pension Fund’s assets in order to
recover any outstanding debts. This is held for the protection of the
Custodian and has never been invoked.
10. Derivatives
a) Futures
Futures contracts are exchange traded. They are standardised contracts,
traded on a futures exchange. Futures are held for the purpose of
equitising cash; taking a given amount of cash, turning it into an equity
position whilst still retaining cash like liquidity.
Futures are disclosed in the accounts at fair value which is the exchange
price for closing out of the contract at the balance sheet date. This
represents the unrealised profit or loss on the contract. The notional value
represents the Pension Fund’s economic exposure which is the value of the
securities purchased under the futures contract and therefore the value
subject to market movements.
Contract
Duration
2008/09
Notional
Fair value
value
£’000
£’000
2009/10
Notional
Fair value
value
£’000
£’000
FTSE 100
1-3 months
0
0
281
2
S&P 500 e
mini
DJ EURO
STOXX 50
TOPIX INDEX
FUTURE
(TSE)
1-3 months
555
54
1,421
17
1-3 months
0
0
1,297
9
1-3 months
0
0
276
11
555
54
3,274
39
Total
b) Forward Foreign Exchange Contracts
Forward foreign exchange contracts are over the counter contracts with
non-exchange counterparties. The counterparties at 31 March 2009 and
31 March 2010 were UK and overseas investment banks. The contracts in
the table below represent various forward contracts involving nine foreign
currencies (nine at 31 March 2009). Forward foreign exchange contracts
are used to hedge against foreign currency movements.
Page 44 of 106
Forward foreign exchange contracts are disclosed in the accounts at fair
value which is the gain or loss that would arise from closing out the contract
at the balance sheet date by entering into an equal and opposite contract at
that date. The notional value of the contract reflects the current value of
the currency purchased under the contract.
Duration
Within 1 month
1-3 months
Total
Notional
value
£’000
2,777
200,804
2008/09
Fair value
Asset
£’000
0
2,213
Liability
£’000
(131)
(2,560)
Notional
value
£’000
243,391
30,062
203,581
2,213
(2,691)
273,453
2009/10
Fair value
Asset
Liability
£’000
£’000
2,962
(3,662)
97
(134)
3,059
11. Current Assets
Contributions due from employers
Cash with Hertfordshire County Council
VAT due from HMRC
Securities lending/commission recapture
Other debtors and prepayments
2008/09
£’000
6,454
79,007
729
20
183
2009/10
£’000
6,093
15,201
531
13
304
Total
86,393
22,142
2008/09
£’000
774
1,019
135
797
2009/10
£’000
788
1,743
296
939
2,725
3,765
12. Current Liabilities
Tax payable to HMRC
Investment management fees
Other creditors
Unpaid benefits
Total
13. Liabilities After Year End
The Pension Fund’s financial statements do not take account of the
liabilities to pay pensions and other benefits after 31 March 2010. These
liabilities are valued as part of the triennial valuation process described on
pages 23-24.
Page 45 of 106
(3,796)
The last actuarial valuation of the Pension Fund was carried out as at
31 March 2007 to determine contribution rates for the financial years
2008/09 to 2010/11. The market value of the Pension Fund’s assets at the
valuation date was £2,152.2m and represented 84.7% of the Pension
Fund’s accrued liabilities, allowing for future pay increases.
In accordance with the Scheme regulations, employer contribution rates
were set to meet 100% of the Pension Fund’s existing and prospective
liabilities as detailed in the Funding Strategy Statement on page 72.
The contribution rates were calculated using the projected unit actuarial
method (or the attained age method for employers closed to new entrants)
and the main actuarial assumptions were as follows:
Rate of return on investments
Rate of general pay increases
Rate of price inflation
5.9%
4.7%
3.2%
14. Early Retirement Funding
The Local Government Pension Scheme (Administration) Regulations 2008
(as amended) give the Administering Authority the right to request
employers to make additional payments to the Pension Fund towards the
cost of early retirements. The expected income from this in future years is,
as follows:
Deferred income related to early
retirement costs
Year
£’000
2010/11
1,715
2011/12
1,224
2012/13
888
2013/14
654
2014/15
204
Page 46 of 106
2009/10
Total AVCs
£’000
£’000
£’000
£’000
£’000
£’000
5,104
2,833
7,937
4,282
2,469
6,751
452
18
470
426
15
441
33
485
0
18
33
503
0
426
0
15
0
441
(472)
(40)
(339)
(1)
(811)
(40)
(466)
(5)
(304)
0
(770)
(5)
0
0
(304)
0
0
(786)
2008/09
Total AVCs
2009/10
Equitable Life
Expenditure
Retirement benefits
Transfer values paid
Lump Sum Death
Benefit
Refunds
2009/10
Standard Life
Income
Contributions
received
Transfer values
received
2008/09
Equitable Life
Value at 1 April
2008/09
Standard Life
15. Additional Voluntary Contributions (AVCs)
Scheme members have the option to make AVCs to enhance their pension
benefits. These contributions are invested separately from the Pension
Fund, with either the Standard Life Assurance Company or the Equitable
Life Assurance Society.
0
(512)
(6)
(346)
(6)
(857)
(10)
0
(481)
Change in market value
(795)
(36)
(831)
968
214
1,182
Value at 31 March
4,282
2,469
6,751
5,194
2,394
7,589
16. Related parties
a) Hertfordshire County Council
The majority of the Pension Fund’s cash is invested with Investment
Managers. However, an amount is invested with Hertfordshire County
Council in order to manage the payment of pensions and collection of
contributions. Hertfordshire County Council paid the Pension Fund
£472,036 in interest during 2009/10 (£2,205,757 in 2008/09).
The amount of cash held by Hertfordshire County Council on behalf of the
Pension Fund at 31 March 2010 was £15.2 million.
Page 47 of 106
b) Investment Committee
Five members of the Hertfordshire County Council Investment Committee
were councillor members of the Hertfordshire Local Government Pension
Scheme during 2009/10. One member of the Investment Committee was in
receipt of pension benefits from the Scheme during the year.
17. Statement of Investment Principles
Regulation 12.1 of the Local Government Pension Scheme (Management
and Investment of Funds) Regulations 2009 requires the Pension Fund to
publish a Statement of Investment Principles. This is set out on pages 5160.
Page 48 of 106
Investment Report
 Investment Management
 Statement of Investment Principles
 Investment Policy
 Review of World Markets
 Investment Performance
Page 49 of 106
Investment Management
Powers of Investment
The principle powers to invest are contained in the Local Government Pension
Scheme (Management and Investment of Funds) Regulations 2009 and require
an Administering Authority to invest any pension fund money that is not needed
immediately to make payments from the Pension Fund.
These regulations permit a range of investments, subject to specific restrictions.
Investments may be made:

in any security on any recognised stock exchange (no single holding to
exceed 10% of the value of all investments);

in unlisted securities (subject to a maximum of 10% of the total value of
investments);

in Unit Trusts and other Managed Funds subject to a maximum of 25% of
the total value of investments with any one Investment Manager;

by deposit with any bank (subject to a maximum of 10% of the value of all
investments to any one bank, excepting National Savings Bank) or Local
Authority (the total of such deposits not to exceed 10% of the total value of
all investments).
The regulations require that the Administering Authority’s investment policy
must be formulated with a view to:

the advisability of investing Pension Fund money in a wide variety of
investments;

the suitability of particular investments and types of investments;

obtaining proper advice at reasonable intervals about their investments.
A local authority may elect to impose its own restrictions in addition to the legal
restraints laid down in the regulations. The additional limits which have been
determined by the County Council are set out in the Pension Fund’s Statement
of Investment Principles on pages 50-59.
Responsibility for Investing the Pension Fund
The Investment Committee of the County Council is responsible for setting the
overall investment strategy of the Pension Fund and monitoring investment
performance.
The investments, with the exception of property unit trusts, are managed by
external Investment Managers, who have substantial discretionary powers
regarding their individual portfolios. The County Council is responsible for the
management of the
Page 50 of 106
property unit trusts held by the Pension Fund. The split of the Pension Fund
between these managers at 31 March 2010 is shown in the following table.
Investment Manager
AllianceBernstein Ltd.
Baillie Gifford & Co.
BlackRock Investment Management (UK) Ltd.
Jupiter Asset Management Ltd.
In House Property Fund
Deutsche Asset Management (UK) Ltd.
JPMorgan Asset Management (UK) Ltd.
RCM (UK) Ltd.
Private Equity
Residual Funds from previous portfolios
% of Fund
15.7%
11.9%
19.6%
12.7%
5.5%
10.2%
10.5%
9.8%
4.1%
0.1%
The Statement of Investment Principles details the extent to which the
Administering Authority complies with the principles of good governance and
investment practice, set out in the Myners review of Institutional Investment in
the UK.
Page 51 of 106
Statement of Investment Principles 2010
Introduction
The County Council is responsible for the administration of the Pension Fund.
The County Council has a statutory duty to ensure that any funds, not
immediately required to pay pension benefits, are suitably invested.
As required by statute, the County Council has approved a Statement of
Investment Principles which is applied to the management of the Pension Fund
investments.
In accordance with government guidelines, the extent to which the Pension
Fund complies with the statutory guidance “Investment Decision making and
disclosure in the Local Government Pension Scheme: A Guide to the
Application of the Myners Principles” is set out at Appendix A to this Statement.
Who Makes the Investment Decisions?
The Investment Committee of the County Council, advised by the Chief
Finance Officer, is responsible for setting the overall investment strategy,
monitoring investment performance and then implementing relevant policies.
The Investment Committee consists of eight County Council members, three
(non-voting) District Council members elected by the Hertfordshire Local
Government Association and a non-voting UNISON representative.
Day to day operational decisions are delegated to the County Council’s Chief
Finance Officer.
The Pension Fund’s governance arrangements are set out in full in the
Governance Policy and Compliance Statement on the Pension Fund website
www.hertsdirect.org/pensions
From 1st April 2010 all investments, will be managed by external investment
management organisations (Investment Managers).
What are the Investment Objectives of the Pension Fund?
1. To comply with the Local Government Pension Scheme (Management and
Investment of Funds) Regulations 2009, specifically to ensure that all:




funds are suitably invested;
investments are diversified;
relevant investment limits are not exceeded;
investments and investment arrangements are regularly monitored and
reviewed.
Page 52 of 106
2. To ensure that the Pension Fund has sufficient assets to pay Scheme
benefits.
3. To achieve a long term rate of return on the invested funds (both capital
gains and income) which assists in controlling the level of employers’
contributions to the Pension Fund and also the cost of the pensions to the
local taxpayers where appropriate by:
i)
as a minimum, matching the Actuary’s rate of return assumptions made
when assessing the Pension Fund’s level of funding; and
ii) exceeding the Pension Fund benchmark by 1% measured over three
year rolling periods.
Link to Funding Strategy Statement
This Statement of Investment Principles is linked to the Funding Strategy
Statement, which sets out the Pension Fund’s strategy for meeting employers’
pension liabilities. The aim of the funding strategy is to ensure the long-term
solvency of the Pension Fund while not unnecessarily restraining the
investment strategy set out in this document.
The two strategies set out the common objective of the Pension Fund to
maximise returns on investments to control the level of employers’
contributions.
The Funding Strategy Statement can be found on the Pension Fund’s website
www.hertsdirect.org/pensions.
Achieving the Investment Objectives
The County Council, having taken appropriate professional advice, has made
the arrangements set out below to reduce the risk that one or more of the
investment objectives for the Pension Fund are not achieved over the long
term.
1. Suitable Investments
The Investment Committee considers that the following types of
investments, within specific limits, are suitable for the purposes of a
pension fund:
 cash, bank deposits and other short term money market investments;
 quoted fixed interest securities, individual securities and pooled
investment vehicles;
 quoted equity investments, individual securities and pooled investment
vehicles;
 property unit trusts;
 derivative instruments, but not to be used for speculative purposes;
 unquoted equity investments and private equity pooled vehicles.
Page 53 of 106
2. Fund Benchmark and Asset Allocation
The Pension Fund has adopted a specific benchmark which has been
approved by the Investment Committee, following appropriate professional
advice from the Investment Consultant, Investment Managers and the
performance measurement consultant. The composition of the Pension
Fund benchmark, implemented in May 2008, is set out at Appendix B to
this Statement.
The weightings of the various asset classes within the benchmark form the
basis for asset allocation within the Pension Fund.
The asset allocation set out in the benchmark is designed to spread the risk
and minimise the impact of poor performance in a particular asset class. It
seeks to achieve a spread of investments across both the main asset
classes (quoted equities, bonds, private equity and property) and
geographic regions within each class.
3. Management of Investments
The main choices when selecting a fund management style are:
 Active or passive – making independent decisions when buying or
selling investments (“active”) or buying stocks to replicate a specific
index (“passive”).
 Balanced or specialist – investing across a broad range of asset classes
(“balanced”) or in a narrow, specific asset class (“specialist”).
The Pension Fund currently uses “active, specialist” Investment Managers
only on the advice of the Investment Consultant to increase the potential
return of the Pension Fund.
The number of Investment Managers and the share of the Pension Fund by
type as at 31 March 2009 are shown in the table below, along with
comparative figures for March 2008.
Share of total Pension Fund at
31 March
2009
External, active, specialist
Private equity
In-house, active, specialist
(property unit trusts)
86.9%
6.1%
7.0%
Number of
Investment
Managers
7
4
31 March
2008
89.1%
3.8%
Number of
Investment
Managers
6
4
7.1%
The percentages in the table above are calculated using the value of
investments, cash and net current assets held by each Investment
Manager at 31 March.
Full details of the Investment Managers, their mandates and fee basis are
shown at Appendix C to this Statement.
Page 54 of 106
All the Investment Managers need the approval of the Chief Finance Officer
to acquire shares in any securities that are not listed on a recognised stock
exchange.
4. Responsible Ownership including Social, Environmental and Ethical
Considerations
The Investment Managers are expected to apply their professional
expertise to maintain suitably diversified portfolios for a pension fund.
When making investment decisions the Investment Managers are expected
to take account of what they reasonably believe are all relevant
considerations.
The Pension Fund routinely votes on all matters raised by the largest 350
listed UK companies where it owns shares. The Pension Fund’s voting
policy is to vote in accordance with the current principles of corporate
governance best practice, as advised by the RREV (Research,
Recommendations and Electronic Voting) Service, except when the advice
of the Investment Managers indicates such action would not be in the best
financial interests of the Pension Fund.
5. Investment Restrictions
The following investment restrictions apply to the funds under
management:
i) all limits determined under the Local Government Pension Scheme
Investment and Management of Funds) Regulations 2009; and
ii) additional limits which have been determined by the County Council:
Private Equity
-
Total investments are not to exceed a
maximum of 7.5% of the value of the
Pension Fund. In general the
Committee expects private equity to be
no more than 5%. The 2.5% headroom
allows for fluctuations in the value of
other assets.
Options, futures
and contracts for
differences
-
A maximum of 25% of UK equity
portfolio. Only to be used to protect
against possible adverse fluctuations in
the values of other investments or cash
in the portfolio.
Individual equity
holdings
-
The total holding in a single company is
not to exceed 5% of the issued share
capital.
Page 55 of 106
There are no other restrictions placed on Investment Managers’ investment
decision making. Any breaches of the restrictions above are reported to
the next available meeting of the Investment Committee.
6. Investment Performance Management
The investment performance of Investments Managers is measured by an
independent organisation, the WM Company, which reports quarterly to the
Chief Finance Officer and at least annually to the Investment Committee.
7. Monitoring of Investment Managers
The Investment Committee meets quarterly to consider reports from each
Investment Manager. Each Investment Manager makes a presentation in
person to the Investment Committee on an annual basis and to the Chief
Finance Officer (or his/her representative) on a more regular basis.
8. Actuarial Valuation
The Pension Fund is subject to triennial valuations by an independent
actuary. Employers’ contributions are determined by the Actuary to ensure
that in the long term the Pension Fund’s assets will match its liabilities. The
framework for this is set out in the Funding Strategy Statement.
9. Stock Lending
The Pension Fund operates a stock lending programme through its
custodian bank. The Fund limits the lending to 20% of the total of its
portfolios and ensures that the collateral is in cash or bonds and is valued
on a daily basis to be on average 105% of the value of the stock which has
been lent.
10. Custody Arrangements
The Pension Fund’s assets are held in custody by an independent
custodian, where reasonable controls have been certified by an appropriate
auditor.
This Statement of Investment Principles was presented for approval by the
Investment Committee of Hertfordshire County Council on 10 March 2010 and
is published on the Pension Fund website. Copies are available on request for
participating Scheme employers, Scheme members, pensioners and deferred
beneficiaries. The Statement is reviewed on an annual basis by the Investment
Committee.
Page 56 of 106
Appendix A
Compliance with Myners Principles
Principle
1. Effective Decision Making
Administering authorities should ensure
that:

decisions are taken by persons or
organisations with the skills,
knowledge, advice and resources
necessary to make them effectively
and monitor their implementation;
and

those persons or organisations have
sufficient expertise to be able to
evaluate and challenge the advice
they receive, and manage conflicts of
interest.
Current Position
Day to day operational decisions are
delegated to the County Council’s
Chief Finance Officer, who, with
relevant members of his staff,
regularly attends seminars and
briefing sessions to maintain a high
level of skills and knowledge in
investment matters.
Members of the Investment
Committee act in the role of trustees
for the Pension Fund. They attend
training sessions organised by the
County Council.
Both members and officers involved
with making investment decisions
take advice from appropriately
qualified professionals where
appropriate.
Development Areas
 Use the CIPFA Knowledge and
Skills framework to assess
members and officers to develop
a training plan.
 Develop a medium term business
plan for the Pension Fund.
Page 57 of 106
Principle
2. Clear Objectives
An overall investment objective(s) should
be set out for the fund that takes account
of the scheme’s liabilities, the potential
impact on local tax payers, the strength of
the covenant for non-local authority
employers, and the attitude to risk of both
the administering authority and scheme
employers, and these should be clearly
communicated to advisors and
investment managers.
Current Position
The Pension Fund’s main investment
objective, as set out in this Statement
of Investment Principles,
acknowledges the need to meet the
Pensions Fund’s liabilities and states
that the aim is to ensure the impact
on local tax payers is minimised.
The Statement of Investment
Principles is circulated to the Pension
Fund’s advisors and investment
managers and is published on the
Pension Fund’s website.
Development Area
 Clearly define in the Statement of
Investment Principles the
Pension Fund’s attitude to risk
and how it feeds into the
objectives.
3. Risk and Liabilities
In setting and reviewing their investment
strategy, administering authorities should
take account of the form and structure of
liabilities. These include the implications
for local tax payers, the strength of the
covenant for participating employers, the
risk of their default and longevity risk.
The Pension Fund’s main investment
objective, as set out in this Statement
of Investment Principles,
acknowledges the need to meet the
Pension Fund’s liabilities and states
that the aim is to ensure the impact
on local tax payers is minimised.
Development Areas
 Consider the form and structure
of liabilities as well as non
investment risks more explicitly in
the next review of strategy.
 Develop a pension fund specific
risk management framework.
Page 58 of 106
Principle
4. Performance Assessment
Arrangements should be in place for the
formal measurement of performance of
the investments, investment managers
and advisors.
Administering authorities should also
periodically make a formal assessment of
their own effectiveness as a decision
making body and report on this to
scheme members.
5. Responsible ownership
Administering authorities should:


adopt or ensure their investment
managers adopt, the Institutional
Shareholders’ Committee Statement
of Principles on the responsibilities of
shareholders and agents
include a statement of their policy on
responsible ownership in the
statement of investment principles

report periodically to scheme
members on the discharge of such
responsibilities.
6.Transparency and reporting
Administering authorities should:


act in a transparent manner,
communicating with stakeholders on
issues relating to their management
of investment, its governance and
risks, including performance against
stated objectives
provide regular communication to
scheme members in the form they
consider most appropriate.
Current Position
The Investment Committee formally
measures performance of investment
managers and investments on a
quarterly basis.
Development Areas
 Develop a framework to formally
measure the performance of the
Pension Fund’s advisors.
 Develop a framework to enable
the Investment Committee to
make an assessment of their
effectiveness.
The Pension Fund’s investment
managers have adopted the
Institutional Shareholders’ Committee
Statement of Principles.
A statement regarding responsible
ownership is included in the
Statement of Investment Principles,
which is part of the Annual Report
published on the Pension Fund
website for all scheme members to
access.
The Pension Fund communicates
with its stakeholders through the
publication of the following
documents, in addition to this one, on
the Pension Fund’s website



Governance Statement
Annual report
Communication Statement
In addition a meeting is held for all
employers on an annual basis.
Communication with scheme
members is through the website and
through the Pension Fund’s
employers.
Page 59 of 106
Appendix B
Composition of Total Benchmark
30%
UK Equities
FTSE All Share (including Private Equity)
45%
Global Equities
MSCI AC World Index
4%
UK Gilts
4%
Corporate Bonds
4%
UK Index Linked
FT-A Conventional Gilts All Stocks
Merrill Lynch Sterling non-gilts, all stocks
index
FT-A Over 5 Year Index Linked Gilt
4%
Overseas
Lehman Global Aggregates ex UK
1%
Cash
GBP 7 Day LIBID
8%
UK Property
IPD All Properties Index
Page 60 of 106
Appendix C
Pension Fund Investment Managers
as at 31 March 2009
Value of
Portfolio
at
31/03/2009
Type of
Mandate
Performance
Target
(% above
benchmark)
Fee Type
Jupiter Asset
Management Ltd.
182.0
Active, Specialist,
UK Equities
2%
Performance
Related
Baillie Gifford & Co.
168.6
Active, Specialist,
UK Equities
1.25%
Ad valorem
AllianceBernstein Ltd.
230.5
Active, Specialist,
Global Equities
2%
Performance
Related
Deutsche Asset
Management (UK) Ltd
145.1
Active, Specialist,
Global Equities
4%
Ad valorem
JPMorgan Asset
Management (UK) Ltd
152.4
Active, Specialist,
Global Equities
4%
Ad valorem
RCM (UK) Ltd
156.1
Active, Specialist,
Global Equities
3%
Ad valorem
BlackRock Investment
Management (UK) Ltd.
315.3
Active, Specialist,
Bonds
0.5%
Ad valorem
5.0
Active, Specialist,
Private Equity
Not applicable
Performance
Related
Harbour Vest
47.9
Active, Specialist,
Private Equity
Not applicable
Performance
Related
Standard Life
Investments
40.5
Active, Specialist,
Private Equity
Not applicable
Performance
Related
TTP Ventures
1.6
Active, Specialist
Private Equity
Not applicable
Performance
Related
Unit Trusts
Not applicable
Not
applicable
Investment Manager
Permira
In-House Property Unit
Trust Fund
109.4
Fee types
Ad valorem
Performance Related -
based only on the value of the portfolio
additional fees payable where performance exceeds
the target
Page 61 of 106
Investment Policy
Appendix B of the Statement of Investment Principles on page 58 sets out the
target asset allocation of the Pension Fund for 2009/10, in line with the Pension
Fund’s specific benchmark.
The actual distribution of the Pension Fund within the main investment markets
at
31 March 2010 (and at 31 March 2009 for comparison) is shown below:
Distribution of
Pension Fund
at 31 March 2010
Distribution of
Pension Fund
at 31 March 2009
2%
3% 5%
4%
O/seas Bds
9%
UK Eqs
4%
43%
UK Gilts
4%
8%
O/seas Eqs
4%
6%
4%
4%
43%
UK I-L gilts
Corp Bds
Prop
30%
27%
Cash
Distribution of
Overseas Equity Holdings
at 31 March 2010
Distribution of
Overseas Equity Holdings
at 31 March 2009
13%
N America
19%
14%
Japan
19%
Pacific
Other
4%
4%
Europe
3%
3%
4%
3%
Page 62 of 106
Ten Largest Equity Holdings at 31 March 2010
Market Value
£m
% of Total
Investments
BHP Billiton
31.2
1.5
Vodafone
30.6
1.4
Glaxo SmithKline
28.8
1.3
Royal Dutch Shell B
25.9
1.2
HSBC
22.2
1.0
British American Tobacco
21.8
1.0
BP plc
21.6
1.0
BG Group plc
15.0
0.7
Hewlett Packard
12.6
0.6
Reed Elsevier
12.5
0.6
Ten Largest Equity Holdings at 31 March 2009
(for Comparison)
Market Value
£m
% of Total
Investments
Vodafone
27.1
1.7
Royal Dutch Shell B
26.7
1.7
BG Group plc
23.3
1.5
Glaxo SmithKline
23.1
1.5
BHP Billiton
20.9
1.3
BP plc
16.4
1.1
Reed Elsevier
14.0
0.9
Tesco
13.3
0.9
HSBC
13.2
0.9
British American Tobacco
11.9
0.8
Page 63 of 106
Review of World Markets
Courtesy JPMorgan Asset Management (UK) Ltd
The year to the end of March 2010 saw a strong recovery from the very difficult
previous period for investors. Equity investors saw strong returns with the
MSCI World Index up 44.8% in sterling terms, while Government bond
investors fared less well with the JPMorgan Global Bond Index up only 2.8%
during the period under review.
The period started strongly as investor sentiment was boosted first by signs of
improvements in the financial sector, mainly in the form of better than expected
earnings reports, and secondly by the realisation that the global authorities
would do whatever was necessary to shore up the financial system and restart
economic growth.
Record low interest rates around the globe provided support, as did
announcements from the US Federal Reserve and the Bank of England that
they would begin quantitative easing, effectively printing money to buy
Government Bonds in an attempt to raise asset prices. Investors also
responded positively to a commitment to concerted stimulus action from the
G20 countries and to the US Treasury plan to remove toxic assets from banks’
balance sheets.
As a result, equities and other risk assets rallied sharply from mid-March 2009
onwards, with investors also drawing comfort from possible ‘green shoots’
among economic data releases, notably signs that manufacturing and housing
may be beginning to recover, albeit from very depressed levels. A further boost
came from corporate earnings reports, which showed substantial recovery in
profits in the second half of 2009. US banks reported strong profits, while cost
cutting helped many companies beat earnings expectations and there were
signs that demand was beginning to recover in some sectors.
A note of caution appeared in equity markets in late November as concerns
that Dubai may default on its debt increased risk aversion through markets and
raised fears of contagion in other highly indebted economies. These concerns
grew in January as worries emerged over the sustainability of large deficits in
some peripheral Eurozone countries, particularly Greece.
Worries over the withdrawal of extraordinary monetary policy measures by
global central banks also contributed to uncertainty towards the end of the
period. China raised bank reserve ration requirements in January and again in
February in a bid to slow lending. India raised interest rates in March and
signalled its intention to continue to withdraw stimulus measures to control
inflation expectations.
The European Central Bank and the US Federal Reserve both removed some
of the emergency lending facilities they had established during the financial
crisis, while the US Federal Reserve also raised the discount rate, the rate at
which it lends to commercial banks, from 0.5% to 0.75%. In the UK, the Bank of
England did not rule
Page 64 of 106
out a further extension to its quantitative easing programme, but put purchases
on hold in February while it assessed the effects of the GBP 200 billion spent
so far. All three central banks are nonetheless expected to keep official interest
rates on hold for the time being as the recovery gains traction.
Page 65 of 106
Investment Performance
In order to monitor the performance of the Investment Managers, the Pension
Fund participates in the measurement service of The WM Company. The
performance of the Investment Managers is reported to the Investment
Committee on a quarterly basis.
Over the twelve months to 31 March 2010 the Pension Fund return was 32.6%.
Comparison with the Pension Fund’s Benchmark
The Pension Fund’s performance is analysed against a customised benchmark,
as set out in the Statement of Investment Principles on pages 51-60. The graph
below shows the annual investment returns of the Pension Fund compared to
the benchmark over the last ten years. This shows that the Pension Fund has
performed above benchmark in four of the last ten years.
Pension Fund performance over 10 years relative to benchmark
45.0
25.0
Fund return
15.0
5.0
2004/05
2005/06
2006/07
0.7
-0.2
-1.6
1.4
2009/10
2003/04
0.3
-15.0
2008/09
2002/03
Relative -0.1 1.0
-5.0
2007/08
2001/02
Benchmark
2000/01
Percentage return
35.0
-25.0
-0.9
-1.7 -1.9
The table below shows the long term performance of the Pension Fund against
the benchmark.
Pension Fund
Benchmark
3 year % per annum
-1.0
2.0
5 year % per annum
5.8
7.7
10 year % per annum
3.2
3.8
Page 66 of 106
Performance Comparisons
The Pension Fund subscribes to The WM Company’s Local Authority Pension
Fund Service in order to assess its performance relative to other funds which
operate under the same regulations.
The graph below shows the performance of the Pension Fund over the last ten
financial years relative to the median (or middle) fund in the local authority list.
The graph shows that the Pension Fund has been in the top fifty percent of
local authority funds in five of the last ten financial years.
Pension Fund performance over 10 years relative to
Local Authority median
40.0
20.0
Fund
return
10.0
2003/04
2004/05
2005/06
2006/07
2007/08
-0.1
0.8
1.0
-0.4
2.4
0.5
-1.9
2009/10
2002/03
Relative 1.0
-10.0
2008/09
2001/02
0.0
2000/01
Percentage return
30.0
-2.7
-3.0
Local
Authority
median
-20.0
-30.0
The ten year cumulative returns for 2000/01 to 2009/10 are shown in the table
below:
Pension Fund
3.2%
Comparative Information
3.8%
2.7%
3.8%
Local Authority Average
Retail Price Index
Average Earnings
The table above shows that over the last ten financial years, the Pension
Fund’s performance has been 0.6% less than the average local authority
pension fund, placing it in the 61st percentile of local authority pension funds.
Page 67 of 106
Appendices
 Certified 2007 Actuarial Valuation Contribution Rates
 List of Employing Bodies
 Funding Strategy Statement
Page 68 of 106
Certified 2007 Actuarial Valuation Contribution Rates
for City, District and Borough Councils
with effect from 1 April 2010
Employers’ Contributions
% of payroll
Hertfordshire County Council
20.6%
Broxbourne Borough Council
15.7%
Dacorum Borough Council
25.2%
East Hertfordshire District Council
21.8%
Hertsmere Borough Council
28.5%
North Hertfordshire District Council
22.6%
City & District of St Albans
27.6%
Stevenage Borough Council
27.3%
Three Rivers District Council
19.2%
Watford Borough Council
26.8%
Welwyn Hatfield District Council
22.5%
Page 69 of 106
List of Employing Bodies
Scheme employers:
Councils and other bodies whose employees have a statutory right to be in
the Scheme
Hertfordshire County Council
Broxbourne Borough Council
Dacorum Borough Council
East Hertfordshire District Council
Hertsmere Borough Council
North Hertfordshire District Council
City and District of St Albans
Stevenage Borough Council
Three Rivers District Council
Watford Borough Council
Welwyn Hatfield District Council
Hertfordshire Police Authority
Hertfordshire Probation Committee
Hertford Regional College
Hertfordshire Valuation Tribunal
North Hertfordshire College
Oaklands College
University of Hertfordshire
West Herts College
West Hertfordshire Crematorium Joint
Committee
Foundation Schools and Academies
Ashlyns School
Bishops Stortford High School
Brookmans Park JMI School
Bushey Hall School (to 31/8/2010) *
Bushey Meads School
Chancellors School
Cheshunt School
Christchurch JMI School
Cuffley JMI School
Dame Alice Owen’s School
Fairfield School
Francis Bacon School
Francis Combe Academy **
Goffs School
Herts and Essex High School
Hertingfordbury Cowper JMI
Holmshill School
John Henry Newman School
John Warner School
Leventhorpe School
Little Heath JMI School
Little Reddings JMI and Nursery School
Marlborough School
Mount Grace School
Nicholas Breakspeare School
Northaw JMI School
Parkside First School
Parmiter’s School
Queens School
Rickmansworth School
St Catherine of Sienna RC JMI School
St Clement Danes VA
St Giles C of E JMI School
St Joan of Arc
St Mary’s Catholic School
St Mary’s High School
St Mary’s RC JMI
St Michael’s RC
The Bushey Academy (from 1/9/2010) *
The Wroxham JMI School
Watford Boys Grammar School
Watford Grammar School for Girls
* Change of School Status
** New Scheme Employer for 2009/10
Page 70 of 106
Scheme employers:
Employers who can designate their employees to be in the Scheme
Abbots Langley Parish Council
Aldenham Parish Council
Berkhamsted Town Council
Bishops Stortford Town Council
Buntingford Town Council
Chorleywood Parish Council
Codicote Parish Council
Colney Heath Parish Council
Croxley Green Parish Council
E2BN
Elstree and Borehamwood Town Council
Harpenden Town Council
Hatfield Town Council
Hertford Town Council
Kimpton Parish Council
Knebworth Parish Council
Letchworth Garden City Council
London Colney Parish Council
Markyate Parish Council
Nash Mills Parish Council
North Mymms Parish Council
Pirton Parish Council
Redbourn Parish Council
Royston Town Council
Sandridge Parish Council
Sarratt Parish Council
Sawbridgeworth Town Council
Shenley Parish Council
St Stephens Parish Council
Stanstead Abbotts Parish Council
Tring Town Council
Universitybus Ltd
Walkern Parish Council
Ware Town Council
Watford Rural Parish Council
Welwyn Parish Council
Wheathampstead Parish Council
Woolmer Green Parish Council
Employers Who Participate by Virtue of an Admission Agreement
Age Concern
ARP Trading Ltd
Association of Charity Officers
Broxbourne Housing Association
Carers in Hertfordshire
Central Parking System
Churchill Contract Services Ltd
Citizens Advice Bureau in Hertsmere
Citizens Advice Service in Three Rivers
Community Building Services Ltd
Dacorum Council for Voluntary Service
Dacorum Sports Trust
DC Leisure
East of England IDB Ltd
East Herts Citizens Advice Bureau
Elstree Film Studios
Exemplas
Goldsborough Home Care
Group for the Rootless of Watford
Hayward Services
Hertfordshire Community Meals Ltd
Hertford Museum Trust
Hertfordshire Action on Disability
Hertfordshire Association of Parish and
Town Councils
Hertfordshire Careers Service
Hertfordshire Care Trust
Hertfordshire Partnership NHS Foundation
Trust
Hertsmere Leisure Trust ***
Highfield Park Trust
Hitchin Markets Ltd
John O’Conner (Grounds Maintenance) Ltd
Letchworth Garden City Heritage Foundation
MACE
Mears Building Contactors Ltd ***
Mitie Property Services
National Car Parks Limited
North Herts Homes
North Herts Hospice Care Association
Northgate
Office and General Environmental Services
Limited **
Pro-Action
Quantum Care Ltd
Radlett Centre Trust
Riversmead Housing Association
Serco ***
Shenley Park Trust
Society of Education Officers
Sports and Leisure Management Ltd ***
St Albans Citizens’ Advice Bureau
Steria Services Ltd
Stevenage Homes
Page 71 of 106
Bodies Who Participate by Virtue of an Admission Agreement (continued)
Stevenage Leisure ***
The Fairway Public House Limited
Thrive Homes
TSG Mechanical Ltd
Turners Industrial Cleaning (Stevenage)
Limited
Veolia ES (UK) Limited (formerly Cleanaway
Limited)
Watford Housing Trust
Welwyn Hatfield Leisure Limited
Welwyn Hatfield Sports Centre Trust Limited
William Sutton Housing Association
** New Employers in 2009/10
*** Employer with more than one admission agreement
Employers with no Active Members and Whose Pensioners are/will be Paid From
the Pension Fund
Art Café
Aspire Leisure Trust
Carillion Services Limited
Chauncy Housing Association
Colne Valley Water Company
Commission for the New Towns
Department of Transport
Digica
Elstree Film and Television Studios Limited
Hertfordshire Family Mediation Service
Hemel Hempstead Day Centre Limited
Hertfordshire Housing Consortium
Hertfordshire Magistrates Courts Committee
Hertfordshire Society for the Blind
Hertfordshire Training and Enterprise
Council
Herts E-Learning Partnership
Hockerill College
Kameleon 4 Ltd (formerly Dorchester
Solutions)
Knebworth Day Nursery
Islington and Shoreditch Housing Association
Lee Valley Water Company
Leonard Cheshire
OCS Limited
Offley Place Ltd
Retirement Lease Housing Association
Rickmansworth and Uxbridge Valley Water Co
Rhodes Museum Foundation
South West Herts Business Partnership
St Albans Diocesan Board for Social
Responsibility
St Albans Society for the Deaf
Superclean Services
Thames Water Authority
Watford Sheltered Workshop
Watford Town Centre Partnership Ltd
Wellfield Trust
Weston Voluntary Nursery
Womans Royal Voluntary Society
Page 72 of 106
HERTFORDSHIRE LOCAL GOVERNMENT PENSION SCHEME
FUNDING STRATEGY STATEMENT 2008
1.
Introduction
This is the Funding Strategy Statement (FSS) of the Hertfordshire
County Council Pension Fund (“the Fund”), which is administered by
Hertfordshire County Council, (“the Administering Authority”).
It has been prepared by the Administering Authority in collaboration with
the Fund’s actuary, Hymans Robertson LLP, and after consultation with
the Fund’s employers and investment advisers, Mercers and is effective
from 31 March 2008.
1.1
Regulatory Framework
Members’ accrued benefits are guaranteed by statute. Members’
contributions are fixed in the Regulations at a level which covers only
part of the cost of accruing benefits. Employers pay the balance of the
cost of delivering the benefits to members. The FSS focuses on the
pace at which these liabilities are funded and, insofar as is practical, the
measures to ensure that employers or pools of employers pay for their
own liabilities. The FSS forms part of a framework which includes:




the Local Government Pension Scheme Regulations 1997
(regulations 76A and 77 are particularly relevant); replaced from 1st
April 2008 with the Local Government Pension Scheme
(Administration) Regulations 2008, regulations 35 and 36;
the Rates and Adjustments Certificate, which can be found
appended to the Fund actuary’s triennial valuation report;
actuarial factors for valuing early retirement costs and the cost of
buying extra service; and
the Statement of Investment Principles.
This is the framework within which the Fund’s actuary carries out
triennial valuations to set employers’ contributions, provides
recommendations to the Administering Authority when other funding
decisions are required, such as when employers join or leave the Fund.
The FSS applies to all employers participating in the Fund.
1.2
Reviews of FSS
The FSS is reviewed in detail at least every three years alongside the
triennial valuations, with the next full review due to be completed by 31
March 2011. More frequently, Annex A is updated to reflect any
changes to employers.
Page 73 of 106
The FSS is a summary of the Fund’s approach to funding liabilities. It is
not an exhaustive statement of policy on all issues. If you have any
queries please contact Patrick Towey in the first instance at
patrick.towey@hertscc.gov.uk or on 01992 555148.
2.
Purpose
2.1
Purpose of FSS
The Department for Communities and Local Government (CLG) has
stated that the purpose of the 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 framework to maintain as nearly constant
employer contribution rates as possible; and
to take a prudent longer-term view of funding those liabilities.”
These objectives are desirable individually, but may be mutually
conflicting.
This statement sets out how the Administering Authority has balanced
the conflicting aims of affordability of contributions, transparency of
processes, stability of employers’ contributions, and prudence in the
funding basis.
2.2
Purpose of the Fund
The Fund is a vehicle by which scheme benefits are delivered. The
Fund:


receives contributions, transfer payments and investment income;
pays scheme benefits, transfer values and administration costs.
One of the objectives of a funded scheme is to reduce the variability of
pension costs over time for employers compared with an unfunded (payas-you-go) alternative.
The roles and responsibilities of the key parties involved in the
management of the pension scheme are summarised in Annex B.
2.3
Aims of the Funding Policy
The objectives of the Fund’s funding policy include the following:


to ensure the long-term solvency of the Fund and of the share of the
Fund attributable to individual employers or pools of employers;
to ensure that sufficient funds are available to meet all benefits as
they fall due for payment;
Page 74 of 106






not to restrain unnecessarily the investment strategy of the Fund so
that the Administering Authority can seek to maximise investment
returns (and hence minimise the cost of the benefits) for an
appropriate level of risk;
to help employers recognise and manage pension liabilities as they
accrue with consideration to the effect on the operation of their
business where the Administering Authority considers this
appropriate;
to minimise the degree of short-term change in the level of each
employer’s contributions where the Administering Authority considers
it reasonable to do so;
to use reasonable measures to reduce the risk to other employers
and ultimately to the Council Tax payer from an employer defaulting
on its pension obligations;
to address the different characteristics of the disparate employers or
groups of employers to the extent that this is practical and costeffective; and
to minimise the cost of the Scheme to employers
3.
Solvency Issues and Target Funding Levels
3.1
Derivation of Employer Contributions
Employer contributions are normally made up of two elements:
a) the estimated cost of future benefits being accrued, referred to as
the “future service rate”; plus
b) an adjustment for the funding position (or “solvency”) of accrued
benefits relative to the Fund’s solvency target, “past service
adjustment”. If there is a surplus there may be a contribution
reduction; if a deficit a contribution addition, with the surplus or deficit
spread over an appropriate period.
The Fund’s actuary is required by the regulations to report the Common
Contribution Rate1, for all employers collectively at each triennial
valuation. It combines items (a) and (b) and is expressed as a
percentage of pay. For the purpose of calculating the Common
Contribution Rate, the deficit under (b) is currently spread over a period
of 20 years.
The Fund’s actuary is also required to adjust the Common Contribution
Rate for circumstances which are deemed “peculiar” to an individual
employer2. It is the adjusted contribution rate which employers are
actually required to pay. The sorts of peculiar factors which are
considered are discussed in Section 3.5.
1
2
See 77(4) of the 1997 regulations; 36(4) of the 2007 regulations
See 77(6) of the 1997 regulations; 36(7) of the 2007 regulations
Page 75 of 106
In effect, the Common Contribution Rate is a notional quantity. Separate
future service rates are calculated for each employer or pool of
employers, together with individual past service adjustments according
to employer-specific spreading and phasing periods. The circumstances
in which it is agreed to pool contributions for some employers are set out
in Section 3.7.6.
Annex A contains a breakdown of each employer’s contributions
following the 2007 valuation for the financial years 2008/09, 2009/10 and
2010/11. Each employer’s rate incorporates the adjustment from the
Common Contribution Rate. It also identifies which employers’
contributions have been pooled with others.
Any costs of non ill-health early retirements must be paid as lump sum
payments in addition to the contributions described above, either at the
time of the employer’s decision or by instalments shortly thereafter.
Employers’ contributions are expressed in the Rates and Adjustments
Certificate as minima, with employers able to pay regular contributions at
a higher rate. Employers should discuss with the Administering
Authority before making one-off capital payments.
3.2
Solvency and Target Funding Levels
The Fund’s actuary is required to report on the “solvency” of the whole
fund at least every three years.
‘Solvency” for ongoing employers is defined to be the ratio of the market
value of assets to the value placed on accrued benefits on the Fund
actuary’s ongoing funding basis. This ratio is known as a funding level.
The ongoing funding basis is that used for each triennial valuation and
the Fund actuary agrees the financial and demographic assumptions to
be used for each such valuation with the Administering Authority.
The fund operates the same target funding level for all ongoing
employers or pools of employers of 100% of accrued liabilities valued on
the ongoing funding basis. Please refer to paragraph 3.8 for the
treatment of departing employers.
3.3
Ongoing Funding Basis
The demographic assumptions are intended to be best estimates of
future experience in the Fund based on past experiences of LGPS funds
advised by the Fund Actuary. It is acknowledged that future life
expectancy and in particular, the allowance for future improvements in
mortality, is uncertain. Allowance has been made for improvements in
line with PMA/PFA92 series projections up to calendar year 2033 with
age ratings applied to fit past LGPS experience. Employers are aware
that their contributions are likely to increase in future if longevity exceeds
the funding assumptions.
Page 76 of 106
The approach taken is considered reasonable in light of the long term
nature of the Fund and the assumed statutory guarantee underpinning
members’ benefits. The demographic assumptions vary by type of
member and so reflect the different profiles of employers.
The key financial assumption is the anticipated return on the Fund’s
investments. The investment return assumption makes allowance for
anticipated returns from the Fund’s assets in excess of gilts. There is,
however, no guarantee that assets will out-perform gilts. The risk is
greater when measured over short periods such as the three years
between formal actuarial valuations, when the actual returns and
assumed returns can deviate sharply.
In light of the statutory requirement for the Actuary to consider the
stability of employer contributions it is therefore normally appropriate to
restrict the degree of change to employers’ contributions at triennial
valuation dates.
Given the very long-term nature of the liabilities, a long term view of
prospective returns from equities is taken. For the 2007 valuation, it is
assumed that the Fund’s investments will deliver an average real
additional return of 1.4% a year in excess of the return available from
investing in index-linked government bonds at the time of the valuation.
Based on the asset allocation of the Fund as at 31 March 2007, this is
equivalent to taking credit for excess returns on equities of 1.6% p.a.
over and above the gross redemptions yield on index-linked gilts on the
valuation date and for excess returns of 0.4% p.a. on the other nonequity assets.
The same financial assumptions are adopted for all ongoing employers.
All employers have the same asset allocation.
3.4
Future Service Contribution Rates
The future service element of the employer contribution rate is calculated
on the ongoing valuation basis, with the aim of ensuring that there are
sufficient assets built up to meet future benefit payments in respect of
future service. The future service rate has been calculated separately for
all the employers, although employers within a pool will pay the
contribution rate applicable to the pool as a whole. The approach used to
calculate each employer’s future service contribution rate depends on
whether or not new entrants are being admitted. Employers should note
that it is only Admission Bodies that may have the power not to admit
automatically all eligible new staff to the Fund, depending on the terms
of their Admission Agreements and employment contracts.
3.4.1 Employers which admit new entrants
The employer’s future service rate will be based upon the cost (in excess
of members’ contributions) of the benefits which employee members
Page 77 of 106
earn from their service each year. Technically these rates will be
derived using the Projected Unit Method with a one year control period.
If future experience is in line with assumptions, and the employer’s
membership profile remains stable, this rate should be broadly stable
over time. If the membership of employees matures (e.g. because of
lower recruitment) the rate would rise.
3.4.2 Employers which do not admit new entrants
Certain Admission Bodies have closed the scheme to new entrants.
This is expected to lead to the average age of employee members
increasing over time and hence, all other things being equal, the future
service rate is expected to increase as the membership ages.
To give more long term stability to such employers’ contributions, the
Attained Age funding method is adopted. This will limit the degree of
future contribution rises by paying higher rates at the outset.
Both funding methods are described in the Actuary’s report on the
valuation.
Both future service rates will include expenses of administration to the
extent that they are borne by the Fund and include an allowance for
benefits payable on death in service and ill health retirement. They also
make allowance for members who are expected to leave before
retirement with a deferred pension.
3.5
Adjustments for Individual Employers
Adjustments to individual employer contribution rates are applied both
through the calculation of employer-specific future service contribution
rates and the calculation of the employer’s funding position.
The combined effect of these adjustments for individual employers
applied by the Fund actuary relate to:








past contributions relative to the cost of accruals of benefits;
different liability profiles of employers (e.g. mix of members by age,
gender, manual/non manual, part-timer and full-time);
any different deficit/surplus spreading periods or phasing of
contribution changes;
the difference between actual and assumed rises in pensionable pay;
the difference between actual and assumed increases to pensions in
payment and deferred pensions;
the difference between actual and assumed retirements on grounds
of ill-health from active status;
the difference between actual and assumed amounts of pension
ceasing on death; and
the additional costs of any non ill-health retirements relative to any
extra payments made;
Page 78 of 106
over the period between the 2004-2007 valuations and subsequent
triennial valuation period.
Actual investment returns achieved on the Fund between each valuation
are applied proportionately across all employers. Transfers of liabilities
between employers within the Fund occur automatically within this
process. Unless the actuary is advised otherwise, it is assumed that a
sum broadly equivalent to the reserve required on the ongoing basis is
exchanged between the two employers (where the transfer is on a “fully
funded” basis).
The Fund actuary does not allow for certain relatively minor events
occurring in the period since the last formal valuation [and see also
section 3.6 below], including, but not limited to:



the actual timing of employer contributions within any financial year;
the effect of refunds of contributions or individual transfers to other
Funds;
the effect of the premature payment of any deferred pensions on
grounds of incapacity.
These effects are swept up within a miscellaneous item in the analysis of
surplus, which is split between employers in proportion to their liabilities.
3.6
Asset Share Calculations for Individual Employers
The Administering Authority does not account for each employer’s
assets separately. The Fund’s actuary is required to apportion the
assets of the whole fund between the employers or pools of employers
at each triennial valuation using the income and expenditure figures
provided for certain cash flows for each employer or pools of employers.
This process adjusts for transfers of liabilities between employers
participating in the Fund, but does make a number of simplifying
assumptions. The split is calculated using an actuarial technique known
as “analysis of surplus”. The methodology adopted means that there will
inevitably be some difference between the asset shares calculated for
individual employers and those that would have resulted had they
participated in their own ring-fenced section of the Fund. The asset
apportionment is capable of verification but not to audit standard.
The Administering Authority recognises the limitations in the process, but
having regard to the extra administration cost of building in new
protections, it considers that the Fund actuary’s approach addresses the
risks of employer cross-subsidisation to an acceptable degree.
Page 79 of 106
3.7
Stability of Employer Contributions
3.7.1 Deficit Recovery Periods
The Administering Authority instructs the actuary to adopt specific deficit
recovery periods for all employers when calculating their contributions.
The Administering Authority normally targets the recovery of any deficit
over a period not exceeding 20 years. However, these are subject to
the maximum lengths set out in the table below.
Type of Employer
Statutory bodies with tax
raising powers
Community Admission Bodies
with funding guarantees
Transferee Admission Bodies
Community Admission Bodies
which are closed to new
entrants but whose admission
agreements continue after last
active member retires
All other types of employer
Maximum Length of Deficit Recovery
Period
a period to be agreed with each employer
not exceeding 20 years
a period to be agreed with each employer
not exceeding 20 years
the period from the start of the revised
contributions to the end of the employer’s
contract
a period equivalent to the expected future
working lifetime of the remaining scheme
members allowing for expected leavers
a period equivalent to the expected future
working lifetime of the remaining scheme
members
This maximum period is used in calculating each employer’s minimum
contributions. Employers may opt to pay higher regular contributions
than these minimum rates.
The deficit recovery period starts at the commencement of the revised
contribution rate, which for the 2007 valuation is April 2009; contribution
rates for 2008/09 having already been set at the level advised by the
2004 valuation (and which may include contributions towards the deficit
where employers are contributing at more than the future service rate).
The Administering Authority would normally expect the same period to
be used at successive triennial valuations, but would reserve the right to
propose alternative spreading periods, for example to improve the
stability of contributions.
3.7.2 Surplus Spreading Periods
Any employers deemed to be in surplus may be permitted to reduce their
contributions below the cost of accruing benefits, by spreading the
surplus element over the maximum periods shown above for deficits in
calculating their minimum contributions.
Page 80 of 106
However, to help meet the stability requirement, employers may prefer
not to take such reductions.
3.7.3 Phasing in of Contribution Rises
Phasing in of contribution rises will not be available to Transferee
Admission Bodies.
Requests from other employers to phase in contribution rises will be
considered by the Administering Authority if stability of contributions is
an issue.
3.7.4 Phasing in of Contribution Reductions
Any contribution reductions may be phased in over a period agreed with
the Administering Authority for all employers except:


Transferee Admission Bodies and
employers where the contribution reduction is due to significant
additional contributions having been paid to the Fund since the last
valuation for the purpose of reducing the deficit,
who, for the 2007 valuation, may elect to reduce their contribution rate
with effect from 1 April 2009 or from 1 April 2008 with the agreement of
the Administering Authority and the Actuary.
3.7.5 The Effect of Opting for Longer Spreading or Phasing-In
Employers which are permitted and elect to use a longer deficit
spreading period or to phase-in contribution changes will be assumed to
incur a greater loss of investment returns on the deficit by opting to defer
repayment. Thus, deferring paying contributions will lead to higher
contributions in the long-term.
However any adjustment that is expressed for different employers the
overriding principle is that the discounted value of the contribution
adjustment adopted for each employer will be equivalent to the
employer’s deficit.
3.7.6 Pooled Contributions
3.7.6.1 Smaller Employers
The Administering Authority allows smaller employers of similar
types to pool their contributions as a way of sharing experience
and smoothing out the effects of costly but relatively rare events
such as ill-health retirements or deaths in service. The
maximum number of active members to participate in a pool is
set at 50 employees, unless expressly agreed otherwise by the
employer concerned, those in the pool and the Administering
Authority.
Page 81 of 106
Community Admission Bodies that are deemed by the
Administering Authority to have closed to new entrants are not
permitted to participate in a pool. Transferee Admission Bodies
are also ineligible for pooling.
At the 2004 and 2007 valuation separate pools were operated
for Town and Parish Councils, small Scheduled Bodies and
small Admission Bodies.
3.7.6.2 Other Contribution Pools
Schools are also pooled with their funding Council.
Those employers whose experience has been pooled for the
purpose of setting employer contribution rates are identified in
Annex A.
3.8
Admission Bodies Ceasing
Admission Agreements for Transferee Admission Bodies are assumed to
expire at the end of the contract.
Admission Agreements for other employers are generally assumed to be
open-ended and to continue until the last pensioner dies. Contributions,
expressed as capital payments, can continue to be levied after all the
employees have retired. These Admission Agreements can however be
terminated at any point.
If an Admission Body’s admission agreement is terminated, the
Administering Authority instructs the Fund actuary to carry out a special
valuation, as required under Regulation 78 of the 1997 regulations (38 of
the 2007 regulations), to determine whether there is any deficit.
The assumptions adopted to value the departing employer’s liabilities for
this valuation will depend upon the circumstances. For example:
(a) For Transferee Admission Bodies, the assumptions would be those
used for an ongoing valuation to be consistent with those used to
calculate the initial transfer of assets to accompany the active
member liabilities transferred.
(b) For Community Admission Bodies which elect to voluntarily
terminate their participation, the Administering Authority must look to
protect the interests of other ongoing employers and will require the
actuary to adopt valuation assumptions which, to the extent
reasonably practicable, protect the other employers from the
likelihood of any material loss emerging in future. This could give
rise to significant payments being required.
Page 82 of 106
(c) For Admission Bodies with guarantors, it is possible that any deficit
could be transferred to the guarantor in which case it may be
possible to simply transfer the former Admission Body’s members
and assets to the guarantor, without needing to crystallise any
deficit.
Under (a) and (b), any shortfall would be levied on the departing
Admission Body as a capital payment. Spreading of any payment will
only be permitted in special circumstances and with the agreement of
the Administering Authority and the Actuary.
3.9
Early Retirement Costs
3.9.1 Non Ill Health retirements
The Actuary’s funding basis makes no allowance for premature
retirement except on grounds of ill-health. Employers are required to
pay additional contributions wherever an employee retires before
attaining the age at which the valuation assumes that benefits are
payable.
It is assumed that members’ benefits on age retirement are payable from
the earliest age that the employee could retire without incurring a
reduction to their benefit and without requiring their employer’s consent
to retire. Members receiving their pension unreduced before this age
other than on ill-health grounds are deemed to have retired “early”.
The additional costs of premature retirement are calculated by reference
to these ages.
3.9.2 Ill health monitoring
The Fund will monitor each employer’s, or pool of employers, ill health
experience on an ongoing basis. If the cumulative number of ill health
retirements in any financial year exceeds the allowance at the previous
valuation, the employer will be charged additional contributions on the
same basis as apply for non ill-health cases.
4.
Links to Investment Strategy
Funding and investment strategy are inextricably linked. Investment
strategy is set by the Administering Authority, after consultation with the
employers and after taking investment advice.
Page 83 of 106
4.1
Investment Strategy
The investment strategy currently being pursued is described in the
Fund’s Statement of Investment Principles.
The investment strategy is set for the long-term, but is reviewed
regularly, to ensure that it remains appropriate to the Fund’s liability
profile. The Administering Authority has adopted a benchmark, which
sets the proportion of assets to be invested in key asset classes such as
equities, bonds and property. As at 31 March 2007, the proportion held
in equities and property was approximately 80% of the total Fund assets.
The investment strategy of lowest risk – but not necessarily the most
cost-effective in the long-term – would be one which provides cashflows
which replicate the expected cashflows (i.e. the liabilities). Equity
investment would not be consistent with this.
The Fund’s benchmark includes a significant holding in equities in the
pursuit of long-term higher returns than from index-linked bonds. The
Administering Authority’s strategy recognises the relatively immature
liabilities of the Fund and the secure nature of most employers’
covenants.
The same investment strategy is currently followed for all employers.
The Administering Authority does not currently have the facility to
operate different investment strategies for different employers.
4.2
Consistency with Funding Basis
The Fund’s investment adviser’s current best estimate of the long-term
return from equities is around 4% a year in excess of the return available
from investing in index-linked government bonds.
The funding policy anticipates returns of around 1.8% a year, that is,
2.2% a year less than the best estimate return.
The anticipated future returns from equities used to place a value on
employers’ liabilities only relate to the part of the Fund’s assets invested
in equities (or equity type investments), currently around 75% of all the
Fund’s assets.
Assets invested in property holdings are assumed to deliver long-term
returns of 1% more than the prevailing redemption yield on Government
bonds. Currently 6% of the Fund’s assets are invested in property.
Non equity assets invested in bonds and cash are assumed to deliver
long-term returns of 0.4% pa more than the prevailing redemption yield
on Government bonds.
Thus, the employer contributions anticipate returns from Fund assets
which in the Fund actuary’s opinion there is a better than 50:50 chance
Page 84 of 106
of delivering over the long-term (measured over periods in excess of 20
years).
However, in the short term – such as the three yearly assessments at
formal valuations – there is the scope for considerable volatility and
there is a material chance that in the short-term and even medium term,
asset returns will fall short of this target. The stability measures
described in Section 3 will damp down, but not remove, the effect on
employers’ contributions.
The Fund does not hold a contingency reserve to protect it against the
volatility of equity investments.
4.3
Balance between risk and reward
Prior to implementing its current investment strategy, the Administering
Authority considered the balance between risk and reward. The strategy
has been set to achieve a long term return on investing the assets in
order to assist in controlling the level of employer contributions, with
sufficient diversification across asset classes to reduce risk.
4.4
Intervaluation Monitoring of Funding Position
The Administering Authority monitors investment performance relative to
the growth in the liabilities by means of interim valuations. It reports
back to employers through issuing reports and letters and by inviting the
actuary to speak to the Annual Employers meeting.
5.
Key Risks & Controls
5.1
Types of Risk
The Administering Authority has an active risk management programme
in place. The measures that the Administering Authority has in place to
control key risks are summarised below under the following headings:

financial;

demographic;

regulatory; and

governance
Page 85 of 106
5.2
Financial Risks
Risk
Summary of Control Mechanisms
Fund assets fail to deliver returns
in line with the anticipated returns
underpinning valuation of
liabilities over the long-term
Only anticipate long-term return on a
relatively prudent basis to reduce risk of
under-performing.
Analyse progress at three yearly
valuations for all employers.
Inter-valuation roll-forward of liabilities
between formal valuations at whole fund
level.
Inappropriate long-term
investment strategy
Set Fund specific benchmark after taking
advice from investment advisers
balancing risk and reward.
Fall in risk-free returns on
Government bonds, leading to
rise in value placed on liabilities
Inter-valuation monitoring, as above.
Active investment manager
under-performance relative to
benchmark
Short term (quarterly) investment
monitoring analyses market performance
and active managers relative to their
index benchmark.
Some investment in bonds helps to
mitigate this risk.
This will be supplemented with an
analysis of absolute returns against
those under-pinning the valuation.
This gives an early warning of
contribution rises ahead. In the short
term, volatility is damped down by
stability measures on contributions.
However, if underperformance is
sustained over periods over 5 years
employer contributions would rise more.
Investment managers would be changed
following persistent underperformance.
Pay and price inflation
significantly more than
anticipated
The focus of the actuarial valuation
process is on real returns on assets, net
of price and pay increases.
Inter-valuation monitoring, as above,
gives early warning.
Employers pay for their own salary
awards and are reminded of the geared
effect on pension liabilities of any bias in
pensionable pay rises towards longerserving employees.
Page 86 of 106
5.3
Risk
Summary of Control Mechanisms
Effect of possible increase in
employer’s contribution rate on
service delivery and admission/
scheduled bodies
Seek feedback from employers on scope
to absorb short-term contribution rises.
Mitigate impact through deficit spreading
and phasing in of contribution rises
where security is not an issue.
Demographic Risks
Risk
Summary of Control Mechanisms
Ill health retirements significantly
more than anticipated
Monitoring of each employer’s ill-health
experience on an on-going basis. The
employer may be charged additional
contributions if this exceeds the ill-health
assumptions built in.
Pensioners living longer
Set mortality assumptions with some
allowance for future increases in life
expectancy.
Fund actuary monitors combined
experience of around 50 funds to look
for early warnings of lower pension
amounts ceasing than assumed in
funding.
Administering Authority encourage any
employers concerned at costs to
promote later retirement culture. Each 1
year rise in the average age at
retirement would save roughly 5% of
pension costs.
Deteriorating patterns of early
retirements
Employers are charged the extra capital
cost of non ill health retirements
following each individual decision.
Employer ill health retirement
experience will be monitored.
Page 87 of 106
5.4
Regulatory
Risk
Summary of Control Mechanisms
Changes to regulations, e.g. more
favourable benefits package,
potential new entrants to scheme,
e.g. part-time employees
The Administering Authority is alert to the
potential creation of additional liabilities
and administrative difficulties for
employers and itself.
Changes to national pension
requirements and/or HMRC rules
e.g. tax simplification
It considers all consultation papers
issued by the CLG and comments where
appropriate.
The Administering Authority will consult
employers where it considers that it is
appropriate.
Copies of all submissions are available
for employers on request.
5.5
Governance
Risk
Summary of Control Mechanisms
Administering Authority unaware
of structural changes in an
employer’s membership (e.g.
large fall in employee members,
large number of retirements).
The Administering Authority will monitor
membership movements on a quarterly
basis, via a report from the administrator
at quarterly meetings.
Administering Authority not
advised of an employer closing to
new entrants.
Administering Authority failing to
commission the Fund Actuary to
carry out a termination valuation
for a departing Admission Body
and losing the opportunity to call
in a debt.
Administering Authority failing to
commission the Fund Actuary to
carry out a termination valuation
for a departing Admission Body
and losing the opportunity to call
in a debt.
The Actuary may be instructed to
consider revising the rates and
Adjustments certificate to increase an
employer’s contributions (under
Regulation 78 of the 1997 regulations;
38 of the 2007 regulations) between
triennial valuations.
Deficit contributions are expressed as
monetary amounts for employers whose
membership profile is subject to
change.(see Annex A).
In addition to the Administering Authority
monitoring membership movements on a
quarterly basis, it requires employers
with contractors to inform it of
forthcoming changes.
It is developing a diary system to alert it
to the forthcoming termination of
Transferee Admission Agreements.
Page 88 of 106
Risk
Summary of Control Mechanisms
An employer ceasing to exist with
insufficient funding or adequacy
of a bond.
The Administering Authority believes
that it would normally be too late to
address the position if it was left to the
time of departure.
The risk is mitigated by:




Seeking a funding guarantee fro
another scheme employer, or
external body, wherever possible.
Alerting the prospective employer to
its obligations and encouraging it to
take independent actuarial advice.
Vetting prospective employers before
admission.
Where permitted under the
regulations requiring a bond to
protect the scheme from the extra
cost of early retirements on
redundancy if the employer failed.
Page 89 of 106
Annex A – Employers’ Contributions, Spreading and Phasing Periods
Following the 2007 valuation, the minimum employer contributions shown in the
Rates and Adjustment certificate attached to the 2007 valuation report are
based on the deficit recovery periods and phasing periods shown in the table
below. The table also shows the individual adjustments under Regulation 77(6)
of the 1997 regulations (36(4) of the 2007 regulations) to each employer’s
contributions from the ‘Common Contribution Rate’.
Page 90 of 106
STATEMENT TO THE RATES AND ADJUSTMENTS CERTIFICATE
The Common Rate of Contribution payable by each employing authority under
Regulation 77 for the period 1 April 2008 to 31 March 2011 is 21% of
pensionable pay (as defined in Appendix B).
Individual Adjustments are required under Regulation 77 for the period 1 April
2008 to 31 March 2011 resulting in Minimum Total Contribution Rates
expressed as a percentage of pensionable pay are as set out below:
2008/09
Hertfordshire County Council Pool
1 Hertfordshire County Council
146 Rickmansworth School
147 Watford Grammar School for Girls
150 Parmiter's School
151 St Mary's RC School
152 Francis Bacon School
154 Christchurch JMI
156 Watford Boys Grammar School
157 Parkside 1st School
159 Hertingfordbury Cowper Primary
160 Ashlyns School
161 Bushey Hall School
162 Dame Alice Owen's School
163 Mount Grace School
164 Queens School
165 Bushey Meads School
170 Bishops Stortford High School
171 Nicholas Breakspeare School
172 St Michael's RC School
173 St. Giles School
174 Goffs School
175 John Henry Newman School
176 Marlborough School
177 Leventhorpe School
178 Chancellors School
179 St Joan of Arc RC School
180 St Clement Danes VA
181 Wroxham JMI
182 Brookman's Park JMI
183 Little Reddings JMI and Nursery
184 St Catherines of Sienna RC JMI
185 John Warner School
186 Cheshunt School
187 St Mary's High School
188 Herts & Essex High School
190 St Mary's Catholic School
191 Northaw JMI School
192 Little Heath JMI School
193 Cuffley JMI School
194 Owen's School
195 Holmshill School
205 Fair Field School
242 Churchhill Contract Services Limited
246 Offley Place Ltd
District Councils
101 Broxbourne Borough Council
102 Dacorum Borough Council
103 East Herts District Council
104 Hertsmere Borough Council
105 North Herts District Council
106 St Albans District Council
107 Stevenage Borough Council
108 Three Rivers District Council
Minimum contribution rates for the year ending
2009/10
2010/11
2011/12
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
19.4%
17.6%
-
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
-
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
-
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
20.6%
-
12.4%
23.9%
21.8%
25.9%
25.4%
27.4%
24.7%
17.5%
18.6%
25.2%
21.8%
28.5%
24.9%
27.6%
27.3%
19.2%
18.6%
25.2%
21.8%
28.5%
24.9%
27.6%
27.3%
19.2%
18.6%
25.2%
21.8%
28.5%
24.9%
27.6%
27.3%
19.2%
Page 91 of 106
109 Watford Borough Council
110 Welwyn & Hatfield District Council
Parish and Town Council Pool
68 Welwyn Parish Council
90 Aldenham Parish Council
91 Walkern Parish Council
93 Buntingford Town Council
94 Hatfield Town Council
120 Knebworth Parish Council
121 Ware Town Council
122 Bishop's Stortford Town Council
123 Sawbridgeworth Town Council
124 North Mymms Parish Council
125 Hertford Town Council
126 Tring Town Council
130 Croxley Green Parish Council
131 Berkhamsted Town Council
134 Abbots Langley Parish Council
137 Kimpton Parish Council
138 Royston Town Council
139 Harpenden Town Council
140 Elstree & Borehamwood Town Council
148 Chorleywood Parish Council
149 Colney Heath Parish Council
Hertfordshire Association of Parish and Town
202
Councils
211 Sarratt Parish Council
216 Sandridge Parish Council
217 St Stephens Parish Council
220 Shenley Parish Council
224 Markyate Parish Council
226 Nash Mills Parish Council
228 Pirton Parish Council
229 Watford Rural Parish Council
231 Stanstead Abbots Parish Council
232 London Colney Parish Council
258 Redbourn Parish Council
273 Letchworth Garden City Council
281 Codicote Parish Council
Small Admitted Bodies Pool
74 Hertfordshire Action on Disability
127 Age Concern Hertfordshire
128 Chauncy Housing Association
135 Hemel Hempstead Day Centre Ltd
136 Dacorum Council for Voluntary Service
141 Hertford Museum Trust
145 Hertfordshire Care Trust
153 Hertfordshire Training & Enterprise Council
155 Shenley Park Trust
197 Carers in Hertfordshire
198 Exemplas
199 Rickmansworth Citizens Advice Bureau
200 Bishops Stortford Citizens Advice Bureau
203 Hertford Citizens Advice Bureau
204 St Albans Citizens Advice Bureau
2008/09
26.0%
17.9%
Minimum contribution rates for the year ending
2009/10
2010/11
26.8%
26.8%
19.1%
20.3%
2011/12
26.8%
21.5%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
20.0%
21.6%
21.6%
21.6%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
21.6%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
Page 92 of 106
206 Oxhey & District Citizens Advice Bureau
209 Ware & District Citizens Advice Bureau
210 Abbots Langley Citizens Advice Bureau
212 Group for the Rootless of Watford
213 Highfield Park Trust
215 Association of Charity Officers
218 Weston Voluntary Nursery
219 Wellfield Trust
222 Radlett Centre Trust
225 Buntingford Citizens Advice Bureau
230 Citizens Advice Bureau in Hertsmere
234 Watford Town Centre Partnership Limited
237 Knebworth Nursery School
239 Womans Royal Voluntary Society
244 Hertfordshire E-Learning Partnership
253 North Hertfordshire Hospice Care Association
263 East Herts Citizens Advice Service
266 Art Café
270 Citizens Advice Service in Three Rivers
Individual Employers
3 Hertfordshire Police Authority
4 Hertfordshire Career Services Ltd
57 Hertfordshire Probation Board
60 Hertfordshire Valuation Tribunal
79 Letchworth Garden City Heritage Foundation
88 Welwyn Hatfield Sports Centre Trust
116 West Herts Crematorium
143 University Of Hertfordshire
158 Quantum Care Ltd
166 Hertford Regional College
167 North Hertfordshire College
168 Oaklands College
169 West Hertfordshire College
189 William Sutton Housing Association
196 Riversmead Housing Association
214 Stevenage Leisure Ltd
221 University Bus
223 Leonard Cheshire
233 Mears Building Contractors Ltd
235 Digica FMS
236 Hertsmere Leisure Trust
238 Cleanaway Limited
240 MACE Ltd
241 North Hertfordshire Homes
247 Turners Industrial Cleaning (Stevenage) Ltd
248 John O'Conner (Grounds Maintenance)
249 Welwyn Hatfield Leisure Limited
251 Dacorum Sports Trust
252 The Fairway Public House Limited
256 Hertfordshire NHS Partnership Trust
257 Hayward Services Ltd
259 Superclean Services Wolthorpe Ltd
261 National Car Parks
264 Broxbourne Housing Association
265 TSG Mechanical Services Ltd
267 Serco (Welwyn Hatfield BC)
271 Stevenage Homes
274 DC Leisure Management Ltd
275 Stevenage Leisure (Aspire)
276 Goldsborough Home Care
Employers who joined after 31 March 2007
272 E2BN
278 Watford Community Housing Trust
282 Elstree Film Studios
283 Mears
284 Mitie Property Services
285 Central Parking Systems
286 Thrive Homes
2008/09
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
28.8%
Minimum contribution rates for the year ending
2009/10
2010/11
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
2011/12
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
27.5%
13.7%
16.8% plus £230k
20.6%
23.7%
14.9%
15.5% plus £25k
23.7%
17.7%
17.5% plus £455k
16.2%
14.4%
18.6%
18.4%
18.6% plus 497k
21.0% plus 212k
14.6%
13.6%
15.9%
19.2%
20.0%
10.2%
12.6%
15.4%
14.7%
18.1%
22.8% plus £7k
11.6%
10.7%
15.0%
16.6%
28.5%
15.0%
17.8%
18.0%
22.5%
14.6%
14.9%
14.3% plus £17k
17.9% plus £110k
22.0%
15.3%
21.1% plus £265k
20.6%
20.9% plus £17k
16.6%
21.6% plus £18k
25.8%
19.2%
22.0% plus £396k
17.9%
16.8%
21.0%
21.9%
22.7% plus £354k
18.1% plus £258k
14.6%
18.6%
35.4%
18.2%
20.0%
11.1%
14.2%
15.4%
17.6% plus £19k
21.6%
22.8% plus £7k
14.2%
14.0%
12.5%
19.9%
29.6%
21.3%
16.5%
17.8%
22.5%
19.3% plus £2k
18.7%
14.3% plus £18k
15.3%
21.1% plus £277k
20.6%
20.9% plus £18k
16.6%
21.6% plus £19k
25.8%
19.2%
22.0% plus £415k
17.9%
16.8%
21.0%
21.9%
22.7% plus £371k
18.1% plus £270k
14.6%
18.6%
35.4%
18.2%
20.0%
11.1%
14.2%
15.4%
17.6% plus £20k
21.6%
22.8% plus £8k
14.2%
14.0%
12.5%
19.9%
29.6%
21.3%
16.5%
17.8%
22.5%
19.3% plus £2k
18.7%
14.3% plus £19k
15.3%
21.1% plus £290k
20.6%
20.9% plus £19k
16.6%
21.6% plus £20k
25.8%
19.2%
22.0% plus £435k
17.9%
16.8%
21.0%
21.9%
22.7% plus £388k
18.1% plus £283k
14.6%
18.6%
35.4%
18.2%
20.0%
11.1%
14.2%
15.4%
17.6% plus £21k
21.6%
22.8% plus £8k
14.2%
14.0%
12.5%
19.9%
29.6%
21.3%
16.5%
17.8%
22.5%
19.3% plus £2k
18.7%
14.3% plus £20k
23.9%
23.9%
23.9%
18.9%
17.7%
19.0%
18.4%
18.6%
17.4%
14.5%
18.9%
17.7%
19.0%
18.2%
18.6%
18.6%
15.6%
18.9%
17.7%
19.0%
18.2%
18.6%
18.6%
15.6%
18.9%
17.7%
19.0%
18.2%
18.6%
18.6%
15.6%
Page 93 of 106
Notes
Contributions expressed as a percentage should be paid into Hertfordshire
County Council Pension Fund (‘the Fund’) at a frequency in accordance with
the requirements of the Regulations.
Further sums should be paid to the Fund to meet the costs of any early
retirements and/or augmentation using methods and factors issued by me from
time to time.
Further sums may be required to be paid to the Fund by employers to meet the
capital costs of any ill-health retirements that exceed those included within my
assumptions.
The certified contribution rates represent the minimum level of contributions to
be paid. Employing authorities may pay further amounts at any time and future
periodic contributions may be adjusted on a basis approved basis approved by
the Fund actuary
Page 94 of 106
Annex B – Responsibilities of Key Parties
The Administering Authority should:





collect employer and employee contributions;
invest surplus monies in accordance with the regulations;
ensure that cash is available to meet liabilities as and when they fall due;
manage the valuation process in consultation with the fund’s actuary;
prepare and maintain a Funding Strategy Statement and a Statement of
Investment Principles, both after proper consultation with interested
parties; and
monitor all aspects of the fund’s performance and funding and review the
Funding Strategy Statement and Statement of Investment Principles.
The Individual Employer should:




deduct contributions from employees’ pay correctly;
pay all contributions, including their own as determined by the actuary,
promptly by the due date;
exercise discretions within the regulatory framework;
make additional contributions in accordance with agreed arrangements
in respect of, for example, augmentation of scheme benefits, early
retirement strain, excess ill health early retirements if appropriate; and
notify the Administering Authority promptly of all changes to membership
or, as may be proposed, which affect future funding.
The Fund actuary should:

prepare valuations including the setting of employers’ contribution rates
after agreeing assumptions with the Administering Authority and having
regard to the Funding Strategy Statement; and
prepare advice and calculations in connection with bulk transfers and
individual benefit-related matters.
Page 95 of 106
Glossary
Page 96 of 106
Glossary
Actuary
Administering
Authority
Admission agreement
Augmentation
Benchmark
Bonds
Communication Policy
Statement
Custody/Custodian
Deferred members
Defined benefit final
salary scheme
Equities
An independent qualified consultant who advises on
the financial position of the Pension Fund. Every three
years the Actuary reviews the assets and liabilities of the
Pension Fund and produces the actuarial valuation
which recommends the employer contribution rates.
A local authority required to maintain a pension fund
under the Local Government Pension Scheme
regulations. Within the geographical boundary of
Hertfordshire, the Administering Authority is
Hertfordshire County Council.
A contract between an administering authority, admitted
body and if applicable, the outsourcing Scheme
employer.
Additional membership awarded to a member by their
employer, to a maximum of ten years.
A notional fund which is developed to provide a standard
against which an Investment Manager’s performance is
measured.
A certificate of debt issued by a company, government
or other institution. A bondholder is a creditor of the
issuer and usually receives interest at a fixed rate. Also
referred to as fixed interest securities.
A statement of policy on communications with members
and employers including the provision of information
about the Scheme, the format, frequency and method of
distributing such information and the promotion of the
Scheme to prospective members.
The safe-keeping of securities by a financial institution.
The Custodian is responsible for maintaining investment
records, the settlement of transactions, income
collection, tax reclamation and other administrative
actions in relation to the Pension Fund’s investments.
Members who leave their employment or opt out of the
Scheme and have their benefits deferred until retirement
or until they request a transfer to another pension
scheme.
A scheme where the scheme rules define the benefits
independently of the contributions paid by the members
and employer. Members’ benefits are a specified
fraction of a scheme member’s final pay.
Shares in UK and overseas companies.
Page 97 of 106
Glossary
Final pensionable pay
Fixed interest
securities
Forward foreign
exchange contract
Funded scheme
Funding Strategy
Statement
Futures
Governance Policy
and Compliance
Statement
Hertfordshire Local
Government
Association
Index linked
Investment Consultant
Investment Manager
Lien
Mandate
The figure used to calculate a member’s pension
benefits and is normally a members pay in the last year
before they retire. A member’s benefits could also be
calculated on one of the previous two years pay if that
amount is higher, or the average of any three
consecutive years in the last ten years if the member
has had a downgrade in the last ten years or pay has
been restricted in that period.
Investments which guarantee a fixed rate of interest.
The securities represent loans which are repayable at a
future date but which can be traded on a recognised
stock exchange until this time. Also known as bonds.
An agreement between two parties to exchange one
currency for another at a forward or future date.
A pension scheme that has available assets to cover all
liabilities, including the obligation of future payments to
retirees.
A statement of the Pension Fund’s strategy for meeting
employers’ pension liabilities.
Contracts to buy or sell specific quantities of a
commodity or financial instrument at a specified price
with delivery set at a specified time in the future.
A statement of the governance arrangements of the
Pension Fund including the delegation of responsibility,
terms of reference, representation and compliance with
statutory guidelines.
A voluntary organisation, acting on behalf of the local
government sector in Hertfordshire.
Bonds on which the interest and ultimate capital
repayment are recalculated on the basis of changes in
inflation.
A professionally qualified individual or company who
provides objective, impartial investment advice to the
Pension Fund.
An organisation that specialises in the investment of a
portfolio of securities on behalf of an organisation
subject to the guidelines and directions of the investor.
A form of security interest granted over an asset to
secure the payment of a debt or performance of some
other obligation.
A set of instructions given to an investment manager as
to how a fund is to be managed. Targets for
performance against a benchmark or limits on investing
in certain stocks or sectors may be set. This is
formalised within an investment manager agreement
between a pension fund and investment manager.
Page 98 of 106
Glossary
Pooled investment
vehicles
Private equity
Quoted securities
Rates and
Adjustments
Certificate
Scheme Administrator
Statement of
Investment Principles
Transfer values
Transferee admission
bodies
Unit Trust
Unquoted securities
Whole time equivalent
salary
An investment which allows investors’ money to be
pooled and used by investment managers to buy a variety
of securities, thereby giving investors a stake in a
diversified portfolio of securities.
An asset class consisting of equity securities in operating
companies that are not publicly traded on a stock
exchange.
Shares with prices quoted on a recognised stock
exchange.
A certificate issued by the Pension Fund’s Actuary setting
out the contribution rates payable by participating
employers
An organisation responsible for the administration
of the benefits of the Pension Fund, including the
payment of benefits and maintenance of membership
records. This is contracted out to Serco Solutions in
Hertfordshire.
A formal policy on how a pension fund will invest its
assets including the types in investments to be held, the
balance between different types of investments and risk.
A capital value transferred to or from a pension scheme in
respect of a contributor’s previous periods of pensionable
employment.
An external body contracted to provide services or assets
in connection with the exercise of a function of the local
authority.
A pooled fund in which investors can buy or sell units on
an ongoing basis.
Shares which are dealt in the investment market but
which are not listed on a recognised stock exchange.
The pay a part-time member would receive if they worked
full time.
Page 99 of 106
APPENDIX B:
Draft Letter of Response to the Audit Commission on
Compliance with International Auditing Standards
Penny Irwin
Audit Manager
Audit Commission
1st and 2nd Floors
Sheffield House
Lytton Way Off Gates Way
Stevenage
SG1 3HB
Hertfordshire County Council
County Hall
Hertford SG13 8DP
Fax
Telephone
E-mail
Minicom
Contact
: 01992 555505
: 01992 555601
: mike.parsons@hertscc.gov.uk
: 01992 556611
: Mike Parsons
Date
:
Dear Ms Irwin
Hertfordshire Pension Fund 2009/10 audit
Compliance with International Auditing Standards
Thank you for your letters dated 4 May to us as Chairmen of the Audit and
Investment Committees respectively, concerning your current work on the
Hertfordshire Pension Fund accounts for 2009/10. As you suggested, we are
providing you with a joint letter of reply.
In response to your request, I can provide you with the following assurances.
1
Oversight of management’s processes
1.1
Assessment that the financial statements may be materially mis-stated
due to fraud
This risk is considered by the Audit Committee as part of its annual scrutiny of
the Pension Fund accounts. Internal Audit audits and reports to the Committee
on the Pension Fund, assessing the controls designed to ensure the accuracy
and propriety of the financial statements. As a result of this work during
2009/10, the Chief Internal Auditor will report to the Committee that he does not
consider that there is a significant risk of material mis-statement in the financial
statements due to fraud.
1.2
Identifying and responding to risks of fraud
The Chief Finance Officer takes reasonable steps for the prevention and
detection of fraud. The Pension Fund’s assets are held in custody by an
independent custodian, where reasonable controls have been certified by an
appropriate auditor.
In addition, Internal Audit reports to the Audit Committee on its annual planning
process, in which Internal Audit undertakes a detailed risk assessment of the
Council's systems and arrangements, including an explicit evaluation of the risk
Page 100 of 106
of fraud or other irregularity. Administration of the Pension Fund is operated
through the Council’s core financial systems, and Internal Audit's reviews of
each of these are aimed in part at testing for fraud, and at evaluating the
effectiveness of controls aimed at minimising such activity. In addition, Internal
Audit's anti-fraud work covering the Pension Fund includes:



participation in the National Fraud Initiative and investigation of
potential data matches
analytical review of SAP including the investigation of large or
unusual items
contract audits, testing for controls to minimise the risk of corruption.
The Council's Anti-Fraud and Corruption Strategy has been endorsed by the
Committee; the Strategy sets out how the Council responds to suspected or
detected fraud or corruption, and includes the requirement on all Council
employees and members that such suspicions be reported promptly to the
Chief Internal Auditor for investigation. The Council's whistleblowing
procedure, also endorsed by the Committee, sets out how this reporting can be
done in confidence, and is issued to all employees and members. The
Council's website, HertsDirect, provides confidential means for members of the
public to report suspected fraud direct to the Chief Internal Auditor or, if they
prefer, to the Audit Commission's national investigations manager.
Internal Audit is resourced to undertake investigations into suspected fraud,
and has undertaken a number of these in 2009/10 without adversely affecting
its assurance role.
1.3
Communication to employees on business practice and ethics
The Pension Fund has published a Communication Policy Statement which
explains how it communicates with employers and representatives of
employers, Scheme members and prospective Scheme members. This is set
out within the Fund’s 2009/10 Annual Statement of Accounts, and may be
found in the Pension Fund section of the HertsDirect website
<www.hertsdirect.org/pensions>.
The Council's Anti-Fraud and Corruption Strategy, endorsed by the Audit
Committee, is clear and accessible to employees via the Council's intranet
"Compass". Internal publicity on Compass is given to successfully investigated
cases of fraud. Messages are issued to staff via Compass and through
messages such as those issued as part of an “Ethical Awareness Week” in
February 2010.
1.4
Communication to those charged with governance on processes for
identifying and responding to fraud
The Chief Internal Auditor presents the annual Internal Audit Plan to the Audit
Committee, and provides the Committee with the opportunity to scrutinise those
elements of the Plan aimed at identifying and responding to the risks of fraud,
including those within the Pension Fund. The Committee has also been made
aware of the Anti-Fraud and Corruption Strategy. In his Annual Report, the
Page 101 of 106
Chief Internal Auditor provides an account to the Committee of work done to
test anti-fraud controls and of investigations into suspected fraud.
2.
Breaches of internal control
The Investment Committee receives quarterly reports from the Chief Financial
Officer on the performance of the fund against both the Investment and
Administration Strategies. These reports also include, if applicable, any
breaches in control.
In his Annual Report, the Chief Internal Auditor provides an account to the
Committee of work done to test for breaches of internal control, and reports on
management responses to these.
3.
Effective operation of internal controls
Internal Audit tests the operation of the Pension Fund’s internal controls against
the CIPFA/Society of County Treasurers Assurance Framework, including
segregation of duties, and reports on its findings to the Audit Committee.
4.
Awareness of actual, suspected or alleged fraud
In 2009/10, a number of relatively small possible Pension Fund frauds were
identified via the National Fraud Initiative, mostly involving payments relating to
deceased pensioners. Each of these cases was investigated by Internal Audit,
and they are being reported in summary to the Audit Committee. The Chief
Internal Auditor maintains a fraud register of all such instances, which provides
for the recording of the nature and extent of each suspected fraud, the way in
which each case is resolved, and any wider corrective measures.
5
Compliance with relevant laws and regulations
The arrangements established to ensure the Pension Fund’s compliance with
relevant laws and regulations are set out under the heading “Governance
Policy and Compliance Statement” within the Fund’s 2009/10 Annual Statement
of Accounts, which may be found in the Pension Fund section of the
HertsDirect website at <www.hertsdirect.org/pensions>.
We trust that this answers your requests. If you require any further information,
please do not hesitate to contact us.
Yours sincerely
S Quilty
Chairman, Hertfordshire CC
Audit Committee
D E Lloyd
Chairman, Hertfordshire CC
Investment Committee
Page 102 of 106