ITEM PF15
PENSION FUND COMMITTEE – 14 SEPTEMBER 2007
PENSION FUND INVESTMENT AND ADMINISTRATION EXPENSES OUTTURN REPORT FOR THE YEAR ENDED 31 MARCH 2007
Report by the Head of Finance & Procurement
Introduction
1. In February 2006 the Pension Fund Committee agreed a budget in respect of the Pension Fund’s investment and administration expenses for the 2006/07 financial year. The production of this budget is 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 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
3. The largest component of the Investment Management expenses budget is the external fund management fees. The budgeted sum for this service was £2,900,000 but the actual fees were £2,991,000. The difference is mainly due to a larger increase in the market value of the Pension Fund’s assets than forecast over the twelve month period. The managers’ fees are calculated on the market values of their portfolios.
4. The £14,000 overspend on the Global Custody Fee budget is again mainly attributable to the increase in the value of assets.
5. The £47,000 ‘overspend’ on the Consultancy Fee is wholly attributable to the legal and other related costs in connection with signing up to the Group Litigation Order for the recovery of overseas tax. These additional costs were reported and agreed by the Pension Fund Committee in May and August 2006.
6. The Member Training budget was underspent by £10,000. Despite the underspend on this budget, it has been maintained at £12,000 in 2007/08, in line with the Myners report recommendation that trustee training should be given a high priority.
7. The income generated from commission recapture was much lower than forecast, only £4,000 versus the budgeted income of £15,000. The unbundling of trading commission, i.e. the splitting of commission between execution and research, has led to less brokers participating in commission recapture programmes. The only manager for the Oxfordshire Pension Fund that participates in the commission recapture programme is Alliance Bernstein, and they have informed the officers that there is less opportunity to participate because of the diminishing pool of brokers.
8. The income from stock lending was appreciably higher than forecast, £81,000 versus the budgeted figure of £50,000. The Committee will be receiving a separate report reviewing the stock lending arrangements as set out in the Pension Fund Business Plan.
Scheme Administration Expenses
9. The most significant under spend during the year was financial services recharges, which is made up of various elements, amounting to £67,000. Salary costs were under spent by £71,000 due to carrying vacant posts and delays in recruitment approvals. The training costs also reflected an under spend of £3,000. Legal Services charges were over budget by £7,000.
10. There was an under spend of £5,000 on printing and stationery, which was due to the non production of one newsletter.
11. Software and licensing costs were under spent by £25,000 which was the provision made for auto task which was not introduced.
12. Actuarial costs were over spent by £10,000 for additional advice on outsourcing, valuation and new regulations.
RECOMMENDATIONS
13. The Committee is RECOMMENDED to receive the report and to 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) 797111
September 2007
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