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ITEM PF16
PENSION
FUND COMMITTEE – 25 AUGUST 2006
PENSION
FUND INVESTMENT AND ADMINISTRATION EXPENSES
OUTTURN REPORT FOR THE YEAR ENDED 31 MARCH 2006
Report by
the Head of Finance & Procurement
Introduction
- In February 2005
the Pension Fund Committee agreed a budget in respect of the Pension
Fund’s investment and administration expenses for the 2005/06 financial
year. The production of this budget was in accordance with a recommendation
of best practice set out in the Myners Report.
- Annex 1
(download as .xls file) compares
the Investment Management and Scheme Administration outturn figures
against the budget and shows the variations against each budget head.
The reasons for the larger variations are explained below.
Investment
Management Expenses
- The largest component
of the Investment Management expenses budget is the external fund
management fees. The budgeted sum for this service was £2,100,000
but the actual fees were £2,423,000. The difference was mainly due to
a much larger increase than forecast in the market value of the Pension
Fund’s assets over the twelve month period. The value of the assets
was £755 million at 31 March 2005 and £958 million at 31 March 2006,
which represents an increase of 27%. The managers’ fees are calculated
on the market values of their portfolios.
- The £14,000 overspend
on the Global Custody Fee budget is again mainly attributable
to the large increase in the value of assets.
- The £20,000 ‘overspend’
on the Financial Adviser’s fee is accounted for by the £20,000
ex gratia sum awarded to him in respect of the substantially extra duties
he carried out for the two year period ended 30 November 2005. The extra
work included the management restructuring of the Pension Fund and the
Strategic Asset Allocation Review. Officers have tended to use the Independent
Financial Adviser’s expertise on investment matters, in preference to
other external consultants, because it has proven to be far more cost
effective. Furthermore, there is the added advantage that he is very
familiar with the workings of the Oxfordshire Fund and as a consequence
the advice is much more tailored to the Fund’s own particular needs.
- The external
consultancy budget was underspent by £12,000 and the Member
Training budget by £11,000. Despite the underspend on the member
training budget, the budget in respect of 2006/07 has been maintained
at £12,000, in line with the Myners report recommendation that trustee
training should be given a high priority.
- The income generated
from commission recapture and stock lending was higher
than forecast. The only manager that participates in the commission
recapture programme is Alliance Bernstein, and part of the higher income
received was attributable to the extra trading activity they carried
out, as a consequence of them switching into their Global Value Fund.
The £43,000 of income received on stock lending was substantially more
than the £18,000 received in 2004/05 when this activity was first introduced.
Scheme
Administration Expenses
- One major variance
in this service is the £11,000 under spend in the financial services
charges related principally to staffing costs (£6,000 under spend
relating to a member of staff moving, post maternity leave, from full
time to part time working) and training (£4,000 allocated for a training
course, which was cancelled).
- Elsewhere, a number
of minor variances makes up the balance of £11,000 under spend.
RECOMMENDATIONS
- The Committee
is RECOMMENDED to receive the report and note the out-turn position.
SUE SCANE
Head of Finance
& Procurement
Background Papers: Nil
Contact Officers:
Tony Wheeler, Pension Fund Investments Manager Tel. (01865) 815287
Sally Fox, Pensions Administration Manager Tel. (01865) 816080
August 2006
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