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ITEM PF18

PENSIONS FUND COMMITTEE – 25 FEBRUARY 2005

OXFORDSHIRE PENSION FUND BUSINESS PLAN

Report by the Head of Finance & Procurement

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 2005/06, which will be the third such document that the Pension Fund Committee has received, having received plans in respect of 2003/04 and 2004/05.
3. This report also includes a member training programme and an investment management/scheme administration budget.

Review of the 2004/05 Business Plan

4. Most of the major tasks set out in the 2004/05 Business Plan were successfully carried out.
5. On the investment side the only task that was not fully achieved was the production of a single standardised voting report to be produced by ABN Amro Mellon, the Pension Fund’s custodian. Officers and the Independent Financial Adviser discussed this issue during the year with ABN Amro but they were unable to produce this in a user-friendly format, suitable for consideration by the Pension Fund Committee. However, they were able to run off a voting report, which proved to be very helpful to officers in carrying out a voting audit of the managers. A similar exercise will be carried out during 2005/06 and this has been included in the new business plan.
6. One further investment task, which was the review of the Pension Fund’s pooled investment vehicles, was carried out by a different means than originally planned. It was intended to produce a report to the Committee on pooled investment vehicles. However, during the year officers discussed this topic with the managers and requested them to include summary pages on their pooled vehicles within their quarterly reports. This has now been successfully completed and officers wrote to the Committee’s three party spokesmen about this in October 2004.
7. For the past two years the objectives of the administration of pensions have been derived from the best value report, and in particular have aimed at improving the cost effectiveness of the administration service. Over the last year, we have achieved more stability within the team and invested a huge amount of resource to increasing skill levels. It should be noted that despite having better numbers and quality of applicants since the return to OCC it is rare to find an applicant with specific LGPS experience. It is recognised that a minimum of two years is needed to a new team member to learn the fundamentals of the work. The retirement of one manager and subsequent moves within the team coupled with maternity leave has meant that we have carried at least one vacancy for the whole of the year.
8. The 2004/05 financial year saw a significant amount of work associated with the 2004 Valuation. The work for end of year and valuation highlighted a huge amount of information that had not been previously submitted to pensions. The quality of information from employers can vary enormously and each resulting query has to be individually investigated. All of which have contributed to the backlog of work and as a result we have not been able to meet our objective of introducing performance measuring and monitoring as fully as we would wish.
9. The staff turnover and the pressures associated with the 2004 Valuation work have led to a need to reassess continually our priorities. The decision was taken to delay further the implementation of task management, because in reassessing priorities officers decided that the medium-term benefits were out-weighed by the costs of the short-term additional backlog the implementation would cause in the 2004 Valuation results.

Oxfordshire Pension Fund 2005/06 Business Plan

10. Annex 1 (download as .doc file) sets out a recommended business plan for the 2005/06 financial year. The plan lists the investment and pension tasks which should be carried out during 2005/06 and the target date when these should be achieved.
11. On the investment side a review will be carried out on the Fund’s voting arrangements for its overseas holdings. The review will explore the voting policies that Alliance Bernstein and UBS currently have in operation. The option of using the RREV voting service for the Fund’s overseas holdings will also be considered.
12. A voting audit for the Fund’s UK company holdings will be carried out during the year. This exercise was carried out during 2004/05 and proved very effective in identifying areas of weakness in the voting process.
13. The Fund’s strategic benchmark and tactical asset allocation arrangements will be reviewed early during the year. The Fund’s strategic asset allocation was last reviewed in 2002 following an asset liability study. The review will consider whether the existing asset allocation remains best suited to meet its liabilities. Means of achieving a tactical asset allocation overlay at the total fund level will also be explored.
14. The Fund’s custody arrangements will be reviewed and a recommendation will be made as to whether ABM Amro’s contract should be extended by a further two years. The Fund’s cash and currency management arrangements will be reviewed as a separate exercise.
15. The Fund’s private equity investment is currently managed in-house with the Independent Financial Adviser and UBS Investment Banking Division jointly advising on fund selection. The Fund currently has a policy of mainly investing in quoted investment trusts, which need to be actively managed. When the Independent Financial Adviser retires in the future, these arrangements may need to be changed. One possible solution may be to appoint a fund manager and this idea will be considered as part of the review.
16. The remaining item in the investment business plan is an investigation into further options for the monitoring of transaction costs.
17. On the administration side, the ODPM review of the LGPS will continue through the whole of 2005/2006. Officers are not yet able to assess the impact that this will have on workloads, although the changes to the regulations effective from 1 April 2005 will result in procedures needing to be changed. While officers have found that the bulletin they issued in summer 2004 about the proposed changes for 2005 had little impact and raised few queries, this is increasing, although not significantly now the regulations have been made.
18. Officers will continue to develop a communication strategy during 2005/06. They have consulted with employing bodies for their views about the current level of communication and what changes they would like to see implemented. To date there has been limited response suggesting any changes. It is, therefore, likely that officers will formalise existing arrangements with some changes to ensure scheme members are kept updated of the proposed changes to the LGPS and tax regime. They will also continue to provide sessions for both employers and scheme members as requested. They will need to monitor the demands for improved communication in light of the proposed LGPS changes, and the issue of Annual Benefit Statements, which will raise the profile of pension issues.
19. The partial implementation of monitoring of workloads has been helpful in the past year. However in order to move this forward and lay the ground for the implementation of task management, a thorough review of all administration processes needs to be undertaken. A source for process benchmarking has been identified which will enable this task to be carried out.
20. The development and implementation of interfaces for scheme employers other than the Council are a priority for this coming year. Prior to the implementation of SAP employees with multiple jobs had one payroll record and a corresponding pension record. Therefore as the payroll departments go through their records to separate the payroll records the pension records will need to be split. At present the pensioner payroll is being run separately from the main AXISe database. It is the intention to merge the systems once year-end has been finalised.

Oxfordshire Pension Fund 2005/06 Budget

21. Annex 2 (download as .xls file) sets out the Fund’s investment management and scheme administration budget for 2005/06.
22. The investment management budget is projected to increase from £2,178,000 to £2,414,000. Most of this increase (£200,000) is due to higher external management fees, which is a result of increases in the value of managed portfolios as stock markets have risen.
23. Other changes include the custody fee, which is projected to increase from £100,000 to £115,000, mainly due to the ending of a discounted fee, which operated in the first two years of the custody contract. The performance measurement budget is projected to fall by £5,000 following the recently agreed switch in the service provider, which will take effect from 1 April 2005.
24. The financial services recharge budget has increased from £137,860 to £161,260. This in the main reflects a more accurate allocation of costs between the Council and the Pension Fund, and between the investment and administration teams within the Fund.
25. The administration budget shows an increase from £740,000 (including the additional funds added to the budget at the May 2004 meeting of this Committee) to £809,000.
26. The most significant increase is the increase in ICT charges, which reflect both a more accurate allocation of the pension system costs and a request for a one off increase of £26,500 for the purchase of a new server and a lap top.
27. The increase in the other line covers the fees for the NAPF Voting Rights Service or the subscription for the LGPC have not been previously included in the budget figure.
28. Reductions have been achieved in the printing budget amounting to £10,000 and by the removal of the overtime provision, sought for last year, amounting to £18,000.
29. Approval of the proposed administration budget will enable one of the key indicators from the best value review to be met – to achieve cost per member benchmarked against the CIPFA average figure. The budgeted figure of £22.32 compares favourably with the CIPFA figure for 2004 of £22.53.
30. A report comparing the investment management and scheme administration budget for 2004/05 against actual figures will be produced for the August 2005 Committee meeting.

Member Training Programme for 2005/06

31. 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 2004/05 budget will be underspent it is recommended that the 2005/06 budget be maintained at the same level, especially in light of the potential changes to committee membership following the council elections.
32. There are a number of external organisations that provide member training seminars and workshops. Further details of known courses being run during 2005/06 are set out in Annex 1 (download as .doc file). Officers will keep members informed of these events and any others throughout the year.
33. 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.
34. 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 matters and this option will be considered during the year.

RECOMMENDATIONS

35. The Committee is RECOMMENDED to:

1. approve the Oxfordshire Pension Fund Business Plan, as set out at Annex 1, for 2005/06; and
2. approve the Oxfordshire Pension Fund’s Investment Management and Scheme Administration Budget, as set out in Annex 2 (download as .xls file), for 2005/06.

SUE SCANE
Head of Finance & Procurement

Contact Officer:
Tony Wheeler Tel (01865) 815287
Sally Fox Tel (01865) 816080

February 2005.

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