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ITEM PF5

PENSION FUND COMMITTEE – 25 FEBRUARY 2005

Minutes of the Meeting commencing at 10.00 am and finishing at 3.10 pm

Present:

The Committee considered the matters, reports and recommendations contained or referred to in the agenda for the meeting and decided as set out below. Except insofar as otherwise specified, the reasons for the decisions are contained in the agenda and reports, copies of which are attached to the signed Minutes.

1/05. DECLARATIONS OF INTEREST

Councillor Moley declared a personal interest as a member of the Pension Scheme and Councillor Howes declared a personal interest as a with-profit fund holder. Mr Leeding declared a personal interest as he is in receipt of a pension from the Pension Fund.

2/05. MINUTES

The Minutes of the meeting of the Committee held on 26 November 2004 were approved and signed.

3/05. ACTUARIAL VALUATION

(Agenda Item 5)

The Committee considered a report (PF5) which set out the key issues arising from the Actuary’s triennial valuation of the Oxfordshire Pension Fund, as at 31 March 2004. It was also advised that it was the Actuary’s statutory responsibility to determine the employer contributions payable over the next three financial years. Each employer had been issued with figures in December, calculated in accordance with the draft Funding Strategy Statement, and asked to determine whether they wished to move to their new contribution rate in a single step, or over three steps. Employers had also been asked whether they wished to declare any likely changes to their on-going membership numbers, which would make moving to a 25-year recovery period unsound. Responses had been requested by 28 February 2005. Until responses had been received from all employers, the Actuary would be unable to finalise his report, determine the actual employer contributions for the next three years, and issue the Statutory Certificate.

Mr Archer presented the main findings of the Valuation. He said that, so far as he was aware, the Regulations were still due to come into effect on 1 April 2005. If the implementation of the Regulations was delayed, then the Financial Strategy Statement would need to be revised. There would also need to be higher contribution rates.

RESOLVED: to:

1. note the outcome of the 2004 Valuation as presented by the Actuary, and detailed in his report; and
2. request the Head of Finance & Procurement to seek the outstanding responses from employers regarding their employer contribution rates, in order that the Actuary could issue his final report and statutory certificate by 31 March 2005.
   
   

4/05. FUNDING STRATEGY STATEMENT

(Agenda Item 6)

The Committee considered a report (PF6) on the Funding Strategy Statement. Under the Local Government Pension Scheme Regulations, the Pension Fund Committee, acting as Administering Authority, must publish a Funding Strategy Statement for the Oxfordshire Pension Fund by 31 March 2005.

The Committee was advised that there had been very little feedback from Employers on the content of the Funding Strategy Statement. Those comments that had been received had been incorporated into the last draft Statement as presented to this Committee. Since the publication of the preliminary 2004 Valuation results, which had been calculated in accordance with the draft Funding Strategy Statement, there had been no requests for any amendment to the Statement.

As discussed at the November 2004 Committee, the draft statement had been amended to include a clarification of the exceptional circumstances where annual steps in excess of 3 years would be considered (in respect of exceptional variations to funding streams for employers). The Statement had also been amended to take account of the changes to the arrangements for the regulation of the Pension Scheme, with the replacement of OPRA with the new Pensions Regulator from April 2005. The only other changes to the previously presented draft covered typographical corrections.

RESOLVED: to

1. approve the Funding Strategy Statement for the Oxfordshire Pension Fund;

(b) authorise the Head of Finance & Procurement, after consultation with the Chairman, Deputy Chair and Third Group spokesman, to make any necessary changes to the Statement if the 2005 Regulations were revoked.

5/05. OVERVIEW OF PAST AND CURRENT INVESTMENT POSITION

(Agenda Item 7)

The Committee considered Tables 1 to 7 which had been compiled from the records kept by the Custodian, the Pension Fund's prime record keeper. The Committee was advised that the Custodian, in his records, had accrued for dividends and recoverable overseas tax within his valuation figures and in some instances had used different exchange rates and pricing sources compared with the fund managers. The Custodian had also treated dividend scrip issues as purchases which the fund managers might not have done. This meant that there were minor differences between the tabled figures and those supplied by the managers.

The Independent Financial Adviser reviewed the investment activity during the past quarter and presented an overview of the Fund’s position as at 31 December 2004. He also reported that the majority of the funds referred to in minute 62/04 had now been transferred to the Berkshire Pension Fund.

RESOLVED: to receive the tables, and that the information contained in them be borne in mind, insofar as they relate to items 9E, 10E and 11E on the agenda and to note that the majority of the funds for the Probation employees had now been transferred to the Berkshire Pension Fund.

6/05. EXEMPT ITEMS

RESOLVED: that the public be excluded during the consideration of items 8E-13E in the Agenda since it was likely that if they were present during those items there would be a disclosure of "exempt" information as described in Part I of Schedule 12A to the Local Government Act, 1972 and specified below each item in the Agenda, i.e. information relating to the financial or business affairs of any particular person (other than the Authority).

PROCEEDINGS FOLLOWING THE WITHDRAWAL OF THE PRESS AND PUBLIC

7/05. OVERVIEW AND OUTLOOK FOR THE INVESTMENT MARKETS*

(Agenda Item 8E)

The Independent Financial Adviser reported orally giving an overview of the current and future investment scene and market developments across various regions and sectors. The Committee considered his oral report and the report (PF8E) which was supported by relevant tables of economic and market trends, where appropriate. The Independent Financial Adviser responded to questions.

RESOLVED: to receive the Independent Financial Adviser’s written and oral reports and to bear his conclusions in mind when considering the Fund Managers’ reports.

8/05. UBS*

(Agenda Item 9E)

The Independent Financial Adviser reported orally on the performance and strategy of UBS Global Asset Management. The representatives (Mr D Rowe and Mr K Barker) of the Fund Manager reported on the performance of the multi-asset portfolio strategy and hedge funds for the quarter that ended 31 December 2004 with reference to the presentation report which had been circulated separately. They responded to questions.

RESOLVED: to receive UBS’s quarterly valuation report for the quarter ending 31 December 2004.

9/05. BAILLIE GIFFORD*

(Agenda Item 10E)

The Independent Financial Adviser reported orally on the performance and strategy of Baillie Gifford. The representatives (Mr I McCombie and Mr L Robb) of the Fund Manager reported on the performance of the portfolio strategy for the quarter that ended 31 December 2004 with reference to the presentation report which had been circulated separately. They responded to questions.

RESOLVED: to receive Baillie Gifford’s quarterly valuation report for the quarter ending 31 December 2004.

10/05. REPORT OF MAIN ISSUES ARISING FROM THE QUARTERLY VALUATION REPORTS BY FUND MANAGERS NOT REPRESENTED AT THIS MEETING*

(Agenda Item 11E)

The Independent Financial Adviser reported on the main issues arising from the quarterly valuation reports from Alliance Bernstein and Legal & General for the quarter ended 31 December 2004. He said that Alliance Bernstein’s performance had been good and had been achieved at low risk. He added that Legal & General was underweight in gilts and had increased its holding of cash.

RESOLVED: to note the main issues arising from the valuation reports from Alliance Bernstein and Legal & General for the quarter that ended 31 December 2004 and the Independent Financial Adviser’s comments.

11/05. SUMMARY BY THE INDEPENDENT FINANCIAL ADVISER*

(Agenda Item 12E)

The Independent Financial Adviser said that the change in fund management arrangements had been worthwhile as the performance over the last 18 months had been good.

RESOLVED: to note the Independent Financial Adviser’s oral report.

12/05. ADDITIONAL VOLUNTARY CONTRIBUTIONS (AVC) – ANNUAL REVIEW*

(Agenda Item 13E)

The Committee considered a report (PF13E) on the annual review of the Oxfordshire Pension Fund’s AVC provision based on a review carried out by the actuaries.

RESOLVED: to:

1. note the report and to confirm the continued use of Prudential as the Council’s Additional Voluntary Contributions provider;
2. withdraw the With-Profits Fund as the default option with immediate effect;
3. request that officers review the range of funds offered, under the Oxfordshire contract, in 2006 subject to the Head of Finance & Procurement also reporting on whether another default option should be offered.

   ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC

   13/05. SHAREHOLDER ACTIVISM AND CORPORATE GOVERNANCE

(Agenda Item 14)

The Committee considered a report (PF14) which reviewed the policies of the Oxfordshire Pension Fund's four managers on shareholder activism.

RESOLVED: to note the report and to amend the Pension Fund’s Statement of Investment Principles to reflect that the CIPFA principle on activism was now being fully complied with.

The Chairman congratulated the four fund managers on the performance of their respective portfolio.

The Committee broke for lunch between 1 pm and 2 pm.

14/05. MONITORING TRANSACTION COSTS

(Agenda Item 15)

The Committee considered a report (PF15) which reviewed the actions taken by the Oxfordshire Pension Fund's four managers in monitoring and measuring their transaction costs.

RESOLVED: to note the report and to amend the Pension Fund’s Statement of Investment Principles to reflect that the CIPFA principle covering transaction costs was now being fully complied with.

15/05. FACING THE FUTURE – PROPOSITIONS AND PRINCIPLES FOR AN AFFORDABLE AND SUSTAINABLE LOCAL GOVERNMENT PENSION SCHEME

To request the Office of the Deputy Prime Minister (ODPM):

(a) to seek a position closer to the 60:40 target for employer/employee contribution;

(b) to look further at the proposals on the employee contribution rates but with an upper limit of 7% and in particular to consider more closely the relationship of the proposals with the current national tax and state pension arrangements;

(c) that, if the ODPM determines to introduce variable employee contribution rates, it seeks to maximise simplicity and minimise the administrative burden and impact on employers’ pay structures;

(d) to give further consideration to the defined benefit average salary model, including some research on the likely impact on senior pay levels;

(e) to ensure a more standard approach on the final v average salary across the various public sector pension schemes;

(f) to support the following changes where they are in line with changes proposed elsewhere to standardise pension arrangements across the public sector, including:

• A normal retirement age of 65;
• A tax free lump sum at retirement, available by giving up up to 25% of accrued pension;
• Changes to dependents pensions (where civilly registered), and early and ill health retirements. It is recommended to reject extending benefits to co-habitees due to the administrative difficulties associated with establishing entitlement.
• Death in service payments of 3 times salary;
• Flexible retirement schemes;
• Changes resulting from Inland Revenue changes;

(g) to consider a more standard approach to the accrual rate across public sector pension schemes, with the actual rate linked to a view on affordability;

(h) not to develop a defined contribution scheme to sit alongside the current defined benefit arrangements;

(i) to introduce a financial incentive to drive improvements in employer returns;

(j) to publish clear and early communication of its more specific proposals following this consultation exercise, and of the transitional arrangements that will apply.

16/05. RECOMMENDED PROCESS FOR REVIEWING THE PENSION FUND’S STRATEGIC ASSET ALLOCATION

(Agenda Item 17)

The Committee considered a report (PF17) which briefly explained the process that led to the Pension Fund's existing strategic asset allocation.

RESOLVED: to:-

1. request officers to produce a report on tactical asset allocation overlay to a meeting early in the life of the new Council;
2. request that officers rebalance back to the strategic benchmark every 12 months coupled with a tactical asset allocation overlay;
3. request that the Independent Financial Adviser reviews the Fund’s strategic asset allocation annually and reports his findings and recommendations to the Committee;
4. request that officers report to the Committee on changes to the Pension Fund’s liability profile, following the triennial actuarial valuation, or earlier if there are exceptional circumstances.
   

   17/05. OXFORDSHIRE PENSION FUND BUSINESS PLAN

(Agenda Item 18)

The Committee considered a report (PF18) which set out a recommended business plan for both investments and administration in 2005/06, an investment management and scheme administration budget for 2005/06 and details on member training courses.

RESOLVED: to:

1. approve the Oxfordshire Pension Fund Business Plan, as set out in Annex 1, for 2005/06; and
2. approve the Oxfordshire Pension Fund’s Investment Management and Scheme Administration Budget, as set out in Annex 2, for 2005/06.
   
   

18/05. LOCAL GOVERNMENT PENSION SCHEME REGULATIONS (LGPS) – AMENDING REGULATIONS

(Agenda Item 19)

The Committee considered a report (PF19) which set out the regulation changes to be implemented on 1 April 2005 and identified the changes from the draft regulations.

RESOLVED: to accept the report.

19/05. LOCAL GOVERNMENT PENSION SCHEME REGULATIONS (LGPS) – EARLY RETIREMENT COSTS

(Agenda Item 20)

The Committee considered a report (PF20) on a percentage increase to be applied to the factors used in the calculation of early retirements.

RESOLVED: to accept the revised advice to uplift factors by 25%, as part of a move to a common national approach, from 1 April 2005.

20/05. LOCAL GOVERNMENT PENSION SCHEME REGULATIONS (LGPS) – APPLICATIONS FOR ADMISSION AS COMMUNITY BODIES

(Agenda Item 21)

The Committee considered a report (PF21) from two bodies to join the Oxfordshire Pension Fund under the community admission agreements.

RESOLVED: to:

1. approve the application of Reading Quest subject to their agreeing to the terms of the Admission Agreements, and to this Committee being informed when the agreement had been signed;
2. reject the application from Connexions, Berkshire on the basis that this would be a closed agreement for 3 people and the remainder of their staff would be signed to the Berkshire Pension Fund.
   
   

21/05. ANNUAL FORUM

in the Chair

Date of signing 2005

* The reports relating to the exempt items have not been made public and should be regarded as strictly private to those members and officers entitled to receive them.

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