ITEM PF14
PENSIONS FUND COMMITTEE – 21 FEBRUARY 2008
OXFORDSHIRE PENSION FUND BUSINESS PLANAND BUDGET FOR 2008/09
Report by the Assistant Chief Executive & Chief Finance Officer
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. This report sets out the annual business plan for 2008/09 and also includes a member training programme and an investment management/scheme administration budget.
Review of the 2007/08 Business Plan
3. All the investment tasks set out in the 2007/08 Business Plan were successfully carried out.
4. All the administration tasks were successfully carried out in 2007/08, with the exception of the implementation of the New Look Scheme. At the date of writing this report Communities and Local Government (CLG) have yet to issue final regulations.
Oxfordshire Pension Fund 2008/09 Business Plan
5. Annex 1 (download as .doc file) sets out a recommended business plan for the 2008/09 financial year. The plan summarises the investment and pension tasks to be carried out during 2008/09, and the target dates for these.
Oxfordshire Pension Fund 2008/09 Budget
6. Annex 2 (download as .doc file) sets out the Fund’s investment management and scheme administration budget for 2008/09 and compares it with the budget set for 2007/08. A report comparing the investment management and scheme administration outturn figures against the budget for 2007/08 will be produced for the August 2008 Committee meeting.
7. The Fund Management Fee budget has increased from £3.2 million to £3.4 million. £300,000 is attributable to a projected increase in the market value of the assets being managed and £140,000 to the TAA Fund fee being invoiced separately instead of being “hidden” and netted off against the Fund. Offset against these increases is a full year fee saving of £240,000 as a result of switching the UBS UK Equity portfolio to an index tracking manager.
8. The reduction in the Global Custody Fee is due to the Officers negotiating a new fee structure with the Custodian in July 2007.
9. The Independent Financial Adviser’s budget for £61,000 comprises of eight months of the present Adviser’s basic fee and expenses which amount to £18,000 (his contract terminates on 30th November 2008). In addition a further £27,000 has been set aside, to cover the existing Adviser’s involvement in any special assignments outside his contracted duties, such as the interviewing and appointment of a Custodian and UK Equity Index Tracking Manager (see separate report ‘Revised Remuneration arrangements for the Independent Financial Adviser’ elsewhere on this Committee Agenda). Finally, £16,000 has been set aside for the re-appointment or appointment of a new Independent Financial Adviser, which allows for a three month overlap of the Advisers in the event that a new Adviser is appointed.
10. The Consultancy Fee budget has been marginally increased to £62,000. £12,500 of this budget has already been earmarked for the employment of a consultant to assist in the tender process for the appointment of an Index Tracking Manager.
11. The Financial Services Recharge Budget has increased by 4%. By far the largest element of this (£122,000 out of £182,000) relates to Investment Team Employee Expenses. The increase in employee expenses mostly reflects pay inflation and higher employer pension contributions.
12. The income generated from stock lending is projected to increase from £80,000 to £125,000. The actual level of stock lending has increased over the past twelve months, which has generated more fee income for the Pension Fund. Furthermore, Officers negotiated a higher share of the fee split with its Custodian, with Oxfordshire’s share increasing from 60% to 70% and which took effect from 1 September 2007.
13. There will be some costs
associated with restructuring the UBS UK equity portfolio to an Index Tracking
manager. Some of these costs will be dealing costs and hidden. In addition it
will be necessary to appoint a transition manager to ensure the portfolio is
restructured in the most efficient manner. It is impossible to budget for these
transition costs beforehand, because they will not be known until the
restructuring exercise gets underway. Officers will report separately on these
costs and the whole portfolio restructuring exercise to a future meeting, with
a request that the budget be amended at that point. This additional budget can
be funded from the management fee saving of £240,000 resulting from the switch
to an Index Tracking Manager (see paragraph 7 above). Administration
14. During the past year there has been a significant staff turnover within administration. Despite several recruitment drives there has been limited success in filling the vacancies which in part is due to the rate of pay and in part to the calibre of applicants. There is also concern that several of the more recent recruits are now seeking other employment because of the pay rates. In order to address these issues and to recruit successfully to the remaining six vacancies a job evaluation exercise is due to be submitted in February 2008. Hence the Financial Service Charge has been adjusted to reflect success with this application. An amount of £10,000 has also been included for current staff to cover the vacancies.
15. Printing and Stationery this year includes an additional amount of £9,000 to cover the cost of providing all active scheme members with a DVD detailing the new scheme provisions.
16. Postage costs were reduced last year, however the higher budget has been re-instated due to the cost of distributing newsletters. An additional £2,000 has been included for the distribution of the DVD’s.
17. Software Support & Licensing shows a reduction of £4,000 reflecting the removal of a one-off provision in last year’s budget.
18. Actuarial Fees were increased last year because of the additional work involved in the valuation – this is now removed from the budget.
19. District Audit fees have been increased by £25,000, by the Audit Commission to undertake a separate audit of the pension fund rather than treating the pension fund as part of the County Council for audit purposes.
20. The increase in Other Costs of £4,000 is to cover the anticipated cost of advertisements for current vacancies.
Member Training Budget and Programme
21. Following the recommendations of the Myners Review on Institutional Investment in the UK, a member-training budget is now agreed each year. Although it is anticipated that the 2007/08 budget will be underspent it is recommended that the 2008/09 budget be maintained at the same level.
22. There are a number of external organisations that provide member training seminars and workshops. Further details of known courses being run during 2008/09 are set out in annex 3 (download as .doc file) . Officers will keep members informed of these events and any others throughout the year.
23. In addition to external training courses the officers will continue to organise a programme of internal training sessions for members. These sessions will normally precede the quarterly Pension Fund Committee meetings. Officers will also continue to offer members individual briefing/tuition sessions on a one to one basis. New members have found these sessions particularly helpful in the past because they can be tailored to the appropriate level of the individual’s knowledge and expertise.
24. Throughout the year members will also be provided with topical articles and newspaper cuttings, which officers consider to be of interest.
RECOMMENDATIONS
25. The Committee is RECOMMENDED to:
(a) approve the Oxfordshire Pension Fund Business Plan, as set out at Annex 1, for 2008/09; and
(b) approve the Oxfordshire Pension Fund’s Investment Management and Scheme Administration Budget, as set out in Annex 2, for 2008/09.
SUE SCANE Assistant Chief Executive & Chief Finance Officer Corporate Core
Background Papers: Nil
Contact Officer: Tony Wheeler, Pension Fund Investments Manager Tel (01865) 815287
February 2008
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