Meeting documents

Pension Fund Committee
Friday, 20 February 2004

PF200204-12

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ITEM PF12

PENSION FUND COMMITTEE – 20 FEBRUARY 2004

OXFORDSHIRE PENSION FUND BUSINESS PLAN

Report by the Head of Finance

Introduction

  1. Following the publication of the Myners Report the Pension Fund Committee requested that officers draw up an annual business plan, which should contain financial estimates for the investment and administration of the Pension Fund and appropriate provision for member training.

  2. The Pension Fund Committee agreed the first business plan, which was in respect of 2003/04, in February 2003.

  3. This report sets out the annual business plan for 2004/05. It also includes a member training programme and an investment management/scheme administration budget.

    4. Review of the 2003/04 Business Plan

  4. Most of the major tasks set out in the 2003/04 Business Plan were successfully completed by their target dates. On the investment side the appointments of an independent global custodian, transition manager, four new investment managers and a new actuary went reasonably smoothly. Other investment issues dealt with included changes to the investment management monitoring and reporting procedures, a review of the investment performance and risk reporting services, stock lending, consideration of shareholder activism and hedge fund investment.

  5. One of the major changes was the relocation of the Pensions Services team from Liberata to County Hall at the end of March 2003. This was a smooth transition which was quickly followed by other key changes such as the reorganisation of work allocation to meet training needs; document imaging of 30,000+ pension files, with completed documents now being scanned in-house; Fire service pension records for current and deferred members have been loaded onto the pension system. During the year we have spent considerable time working with our payroll colleagues on the development of the automatic interface from payroll to update the pension records from the information held in the SAP pay records. Additionally we have worked to improve information flow, strengthen our internal systems and becoming more responsive to our customers.

  6. However, there were a few minor tasks that were not fully completed. These have been carried forward into the 2004/05 Business Plan and a brief explanation of why these tasks were deferred is provided in paragraphs 8 – 19.

    7. Oxfordshire Pension Fund 2004/05 Business Plan

  7. Annex 1 sets out a recommended business plan for the 2004/05 financial year. The plan lists the investment and pension administration tasks, which should be carried out during 2004/05, and the target date when these should be achieved.

    8. Tasks carried forward from previous year’s Business Plan.

    Review the Pension Fund’s Commission Recapture Provider

  8. The Pension Fund’s Commission Recapture arrangements were reviewed during 2003/04 and reported to the Committee in November 2003. The review expressed satisfaction with the existing service provided by Frank Russell, subject to a comparison of the commission they generated for the Fund with what might be achieved from ABN AMRO Mellon. The delay is necessary, as this comparison would be carried out following the receipt of costing analysis by ABN AMRO Mellon based on at least six months trading activity.

    9. Monitoring Transaction Costs

  9. The Pension Fund’s Statement of Investment Principles states that arrangements will be made to monitor transaction costs. During 2003/04 officers and the Independent Financial Adviser received a detailed presentation from Inalytics, who have formed a strategic partnership with ABN AMRO Mellon to provide an independent transaction cost analysis service. This was reported to the committee in November 2003 with a recommendation to subscribe but did not receive Committee approval.

  10. Following the November meeting Officers wrote to the four managers to establish whether they monitor transaction costs. There is a code of practice that covers this issue, which was jointly drawn up by the Investment Management Association (IMA) and the National Association of Pension Funds (NAPF). All four managers comply with the code and intend to report transaction costs to the Committee on a regular basis.

  11. Officers have also discussed this issue with the Fund’s custodian, ABN AMRO Mellon who is able to provide a certain amount of information. Officers and the Independent Financial Adviser will write a joint report to the Committee on this matter during 2004/05.

    12. Determining a formal process for asset allocation

  12. It was recognised in the 2003/04 business plan that a procedure should be in place to keep the Fund’s asset allocation under review and where necessary recommend changes to the asset weightings. This exercise has been deferred following the ODPM requirement that each Local Government Pension Fund should have a reviewable Funding Strategy Statement (FSS) in place no later than 1 April 2005. Because the FSS will impact upon the Fund’s investment policy it is sensible to review asset allocation after all the FSS elements have been agreed. We will probably require external advice, possibly from the Fund’s newly appointed Actuary, for both the FSS and asset allocation. The Independent Financial Adviser may also have some input into this process.

    13. Production of a single standardised voting report

  13. Producing a single standardised corporate governance and voting report. Discussions were held with ABN AMRO Mellon during 2003/04 with the aim of producing a single independent report. They are currently working on this issue and have promised to have it in place by 30 June 2004.

    14. Introduction of AXIS task management system

  14. We have delayed the start of implementation until January 2004 because key team members have been heavily involved in working on the interfaces between SAP and pensions to ensure that pensions data is as upto date as possible ahead of the 2004 fund valuation. We intend to introduce this on a phased, functional basis to tie in with revised service standards and streamlining of our processes.

    15. Cleanse and update AXIS data

  15. This is a continual process following each year-end. This year, with the introduction of SAP and a forthcoming valuation there has been huge emphasis on information flow and the quality of data. All of which has benefits for other intended changes.

    16. Develop automated interface from MIS

  16. This has been much slower and more problematic than envisaged. Information for new entrants back to November 2002 is being checked and loaded onto the pensions system. Work is continuing on the hour change and amendment interface and ITNet and payroll are working to produce a monthly report for leavers.

    17. Introduction of performance measurement and monitoring processes

  17. This along with other tasks included in our previous business plan for: Developing performance indicators for medium term planning purposes and Publish performance standards and indicators are dependent upon our implementing AXIS task so that we have accurate and relevant data to achieve these.

    18. Develop a training programme for employing body HR staff

  18. This has been mainly directed towards HR staff at Oxfordshire County Council although some training has taken place in the Districts. This needs to be extended. We have recently introduced a monthly newsletter to keep all stakeholders updated on current issues.

    19. Develop Annual Benefit Statements

  19. This becomes a requirement of the scheme regulations from April 2005, for all scheme members.

    20. Oxfordshire Pension Fund 2004/05 Budget

  20. Annex 2 (download as .xls file) sets out the Fund’s investment management and scheme administration budget for 2004/05. The budget takes into account the new investment management costs arising from the major management restructuring exercise. It was formally recognised during the management review process that moving from a balanced to a specialist management structure would increase costs. The Fund’s higher market value has also contributed to the higher management costs.

  21. A budget for £25,000 has been set aside for consultancy and other external fees. These will include help and advice in drawing up the Funding Strategy Statement, reviewing the Fund’s asset allocation and solicitor fees for the stock lending agreement.

  22. A report comparing the investment management and scheme administration budget for 2003/04 against actuals will be produced for the August 2004 Committee meeting.

  23. An increase in the administration budget is being sought for staffing costs this year and the sum of £24,000 has been included in the administration employee’s budget line for this purpose. We have been carrying a minimum shortfall of 27 hours per week for one of the senior administrator posts since the commencement of her first period of maternity leave in August 2002. This senior administrator started a second period of maternity leave at the end of January 2004. It is vital that we maintain the current level of checking whilst rotating the team between functions and continuing our training programme. As it has always proven to be extremely difficult to recruit staff experienced in the Local Government Pension scheme, our proposal is to temporarily recruit a Senior Administrator from within the team to cover this new period of maternity leave. The resulting vacancy would be back filled on a temporary basis. This solution would be in place for the period of maternity leave, at which point the position would be reviewed and a further report made to the Pension Fund Committee.

  24. In addition I am seeking approval to grant some paid overtime ahead of the fund valuation so that we can clear backlogs of work arising from

    • The shortfall of hours detailed in item 23 above,

    • The implementation of Document Imaging and

    • The delay in the implementation of the SAP interfaces.

  1. A sum of £6,000 has been included in the administration employee’s budget line for this purpose.

  2. Under Local Government Pension Scheme legislation, the backlogs of work could present a risk to the authority in terms of fines per case. These extra resources will allow us to clear backlogs and continue with efficiency changes in progress and those planned for the future.

  3. Annex 2 (download as .xls file) shows the total administration budget for 2004/2005 including the additional resourcing shown above amounts to £699K. This compares with a budget for 2003/2004 of £620K. The main reasons for the increase are as follows: -

    • Additional funding requirement on paragraphs 22 and 23 30,000

    • Inflation 9,000

    • Job evaluation 10,000

    • Additional training costs 8,500

    • Actuarial costs 10,000

    • IT costs 6,300

Member Training Budget and Programme

  1. Following the recommendations of the Myners Review on Institutional Investment in the UK, a member training budget was agreed in 2003/04. Although it is anticipated that the 2003/04 budget will be underspent it is recommended that the 2004/05 budget is maintained at the same level.

  2. There are a number of external organisations that provide member training seminars and workshops. Further details of known courses being run during 2004/05 are set out in Annex 1. Officers will keep members informed of these events and any others throughout the year.

  3. In addition to the external training courses members will be given the opportunity of receiving individual briefing/tuition sessions from officers. New members have found these sessions particularly helpful in the past because they can be tailored to the appropriate level of the individual’s expertise.

  4. Throughout the year members will also be provided with topical articles and newspaper cuttings, which officers consider to be of interest. Oxfordshire’s new managers have also offered to provide training on investment related maters and this option will be considered during the year. The feasibility of running joint training days with neighbouring local authorities will also be explored.

RECOMMENDATIONS

The Committee is RECOMMENDED to:

          1. approve the Oxfordshire Pension Fund Business Plan, as set out at Annex 1, for 2004/05;

          2. approve the specific requests for additional staffing resources as set out in paragraphs 23 and 24 above;

          3. approve the Oxfordshire Pension Fund’s Investment Management and Scheme Administration Budget, as set out in Annex 2, for 2004/05.

CHRIS GRAY
Head of Finance

Background Papers: Nil

Contact Officer: Tony Wheeler, Directorate for Business Support Tel (01865) 815287

February 2004

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