Meeting documents

Pension Fund Committee
Friday, 26 August 2005

PF260805-14

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ITEM PF14

PENSION FUND COMMITTEE – 26 AUGUST 2005

PENSION FUND INVESTMENT AND ADMINISTRATION EXPENSES OUT-TURN FIGURES FOR THE YEAR ENDED 31 MARCH 2005

Report by the Head of Finance & Procurement

Introduction

  1. In February 2004 the Pension Fund Committee agreed a budget in respect of the Pension Fund’s investment and administration expenses for the 2004/05 financial year. The production of this budget was in accordance with a recommendation of best practice set out in the Myners Report.

  2. Annex 1 (download as .xls file) compares the Investment Management and Scheme Administration out-turn figures against the budget and shows the variations against each budget head. The reasons for the larger variations are explained below.

    3. Investment Management Expenses

  3. The largest component of the Investment Management expenses budget is the external fund management fees. The fees for this service were estimated as £1,900,000 but the actual fees were £1,964,000. The difference was due to the larger than expected increases in the market values of the manager individual portfolios, as a consequence of strong performing markets. The managers’ fees are calculated on the market values of their portfolios.

  4. The budgeted figure for the management fee is calculated on a gross basis. In practice the higher management fees on pooled investment vehicles are rebated back to the Pension Fund by being netted off against the main management fee. This is done so as to ensure that there is no double counting of fees and that the Pension Fund is effectively only charged the managers’ lower standard fees for investing in pooled vehicles. The total sum rebated back to the Fund was £849,810, which means that the figure disclosed in the 2004/05 accounts is £1,114,270 (£1,964,000 less £849,810).

  5. The £21,000 underspend on the Global Custody Fee budget is due mainly to the lower level of trading activity.

  6. There was no expenditure incurred on the £25,000 external consultancy fee budget. However, it should be noted that it was reported to the Committee, in November 2004, that the Independent Financial Adviser had carried out additional duties above his contracted workload and that this should be taken into account in future years. 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 a more cost effective means. 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.

  7. The members training budget was underspent by £10,000. However, the budget in respect of 2005/06 has been maintained at £12,000 in line with the Myners report recommendation that trustee training should be given a high priority and to reflect the new membership of the Committee.

  8. The income from stock lending was only £18,000 against a budget of £30,000. However, because the stock lending programme was only put in place at the beginning of the 2004/05 financial year the income generated, in its first year, is not a fair reflection on what can be expected in subsequent years. In the first two months of the 2005/06 financial year the earnings already received from stock lending exceed £17,000.

    9. Scheme Administration Expenses

  9. Within the financial service recharges the main areas of over spend were an increase on accommodation costs of £7,000 and the allocation of subscriptions for voting rights amounting to £9,900 after the budget had been set. The other main area was advertising vacancies where the spend was £6,000 more than the budget provision.

  10. Budget provision for printing and stationery has traditionally been generous to allow for the production of an additional member bulletins arising from regulatory changes and also consequent revision of forms, as necessary. The provision has been reduced by £10,000 for 2005/2006.

  11. Over 90% of information sent out is posted to home addresses, although in the case of bulletins distribution will be by courier to employers. Despite the underspend of £6,000 for postage the same budget provision has been maintained in the current financial year to allow for any rise in costs and provision of additional bulletins.

  12. Actuarial fees exceed the budgeted amount by £31,000. The main elements contributing to this were

    • Attendance at meetings, including employer forum

    • Work on Funding Strategy Statement

    • Review of Oxfordshire Pension Fund AVC provisions

    • General advice on IR maximum calculations to early retirement factors

    • The remainder was for additional work undertaken on the valuation and effects of regulatory changes.

  1. Income was reduced as a result of the reduction in both Securities and Investment Board (SIB) mis-selling of pension cases and divorce cases.

    2. RECOMMENDATIONS

  2. 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 (01865) 815287
Sally Fox, Pensions Services Manager (01865) 816080

August 2005

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