Meeting documents

Pension Fund Committee
Friday, 26 November 2004

PF261104-03

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ITEM PF3

PENSION FUND COMMITTEE – 27 AUGUST 2004

Minutes of the Meeting commencing at 10.00 am and finishing at 1.12 pm

Present:

Voting Members:

Councillor C H Shouler - in the chair

Councillor Barbara Gatehouse
Councillor Neville F Harris
Councillor Brian L Hook
Councillor Jim Moley
Councillor David Turner (in place of Councillor Richard Farrell)

District Council Representatives:

Councillor Michael Howes
Councillor Bob Price

Officers:

Whole of meeting: Mr S Collins, Ms S Fox and Mr T Wheeler (Resources); Ms M Holyman (Chief Executive’s Office)

By Invitation:

Mr A Bushell (Independent Financial Adviser)
Mr K Barker (UBS Global Asset Management)
Mr J Pickard (UBS Global Asset Management)
Mr I McCombie (Baillie Gifford)
Mr L Robb (Baillie Gifford)
Mr F Berrie (Russell Mellon)
Mr M Leeding (Beneficiaries Observer)

The Committee considered the matters, reports and recommendations contained or referred to in the agenda for the meeting, together with the presentation report by Russell Mellon circulated at the meeting, and decided as set out below. Except insofar as otherwise specified, the reasons for the decisions are contained in the agenda and reports and additional document, copies of which are attached to the signed Minutes.

    40/04. APOLOGIES FOR ABSENCE AND TEMPORARY APPOINTMENTS

    Apologies for absence and temporary appointments were received as follows:

    Apology from

    Temporary Appointment

    Councillor Richard Farrell

    Councillor David Turner

    41/04. DECLARATIONS OF INTEREST

    Councillors Moley and Turner and Councillor Price (co-opted member) declared personal interests by virtue of being members of the Pension Scheme.

    42/04. MINUTES

    The Minutes of the meeting of the Committee held on 21 May 2004 were approved and signed.

    On minute 22/04, Mr Wheeler reported that a further sum of £556,360 had been invested in the Martello Fund on 26 August 2004.

    43/04. OVERVIEW OF PAST AND CURRENT INVESTMENT POSITION

    (Agenda Item 5)

    The Independent Financial Adviser reviewed the investment activity during the past quarter and presented an overview of the Fund’s position as at 30 June 2004. He also reported that the County Council would have to transfer approximately £8.4m of the Fund for Probation Service employees to the Berkshire Pension Fund. It was also proposed to invest a further £7m in private equities and in the Martello Fund. In addition, he reported that a subscription of approximately £100,000 would be paid to the Oxford Technology 4 Venture Capital Trust on 31 August 2004.

    RESOLVED:

    1. to receive the tables, and that the information contained in them be borne in mind, insofar as they relate to items 9E, 10E and 11E on the agenda;
    2. to ask the Head of Finance to write to all members of the Committee with the reasons for the large "control range" for investment in UK Equities for Alliance Bernstein shown in Table 3.

    44/04. PERFORMANCE OF PENSION FUND

    (Agenda Item 6)

    The Committee considered a report (PF6) which gave a brief background to the main markets and the performance of the major asset classes and also compared the investment performance of the aggregate Pension Fund against its customised benchmark.

    Mr Berrie (Russell Mellon) gave a presentation on the performance of the Pension Fund.

    1. General Report
    2. Individual Report for Oxfordshire County Council Pension Fund

RESOLVED:

(a) to ask Mr Berrie (Russell Mellon) to let the Head of Finance:

(1) know how many private/public sector pension schemes Russell Mellon monitored in its analysis;

(2) have copies of the detailed report from Russell Mellon, which he had referred to in his presentation, for members of the Committee;

(b) to receive the report and presentation.

45/04 EXEMPT ITEMS

RESOLVED: that the public be excluded during the consideration of items 7E-12E in the Agenda since it was likely that if they were present during those items there would be a disclosure of "exempt" information as described in Part I of Schedule 12A to the Local Government Act, 1972 and specified below each item in the Agenda, i.e. information relating to the financial or business affairs of any particular person (other than the authority).

PROCEEDINGS FOLLOWING THE WITHDRAWAL OF PRESS AND PUBLIC

46/04 REPORT BY RUSSELL MELLON ON THE INVESTMENT PERFORMANCE OF THE INDIVIDUAL PORTFOLIOS OF THE PENSION FUND

(Agenda Item 7E)

The Committee was advised that full-year investment performance figures, at the individual management level, were not available this year because the new managers had only been appointed on 11 July 2003. Mr Berrie (Russell Mellon) reported orally to the Committee on the investment performance of each of the four companies’ individual portfolios of the Pension Fund for the nine months ended 30 June 2004 and highlighted where the fund managers had over/underperformed.

RESOLVED: to receive the report.

47/04 OVERVIEW AND OUTLOOK FOR INVESTMENT MARKETS

(Agenda Item 8E)

The Independent Financial Adviser reported orally giving an overview of the current and future investment scene and market developments across various regions and sectors. He highlighted, in particular, the impact of oil supplies and of the Chinese economy on the world economy. His oral report and the report (PF8E) were supported by relevant tables of economic and market trends, where appropriate.

RESOLVED:

(a) to receive the Independent Financial Adviser’s written and oral reports;

(b) to ask Mr Berrie (Russell Mellon) to provide a definition of "drifting benchmarks" which he had referred to in his presentation.

 

48/04 ORDER OF BUSINESS

RESOLVED: that agenda item 11E should be considered after agenda item 8E so that the Committee could consider the exempt reports, which did not involve the presence of the Fund Managers, together.

49/04 REPORT OF MAIN ISSUES ARISING FROM THE QUARTERLY VALUATION REPORTS BY FUND MANAGERS NOT REPRESENTED AT THIS MEETING

(Agenda Item 11E)

The Independent Financial Adviser reported on the main issues arising from the quarterly valuation reports from Alliance Bernstein and Legal & General for the quarter ended 30 June 2004 in conjunction with the information contained in the Tables (Agenda Item 5). He highlighted that Alliance Bernstein had outperformed the benchmarks over the nine months’ period by 1.2% overall. He also highlighted that Legal and General was underweight on some categories of bonds.

RESOLVED: to note the main issues arising from the quarterly valuation reports for the quarter ending 30 June 2004 and the Independent Financial Adviser’s comments.

50/04 UBS GLOBAL ASSET MANAGEMENT

(Agenda Item 9E)

The Independent Financial Adviser reported orally on the performance and strategy of UBS Global Asset Management drawing on the tables at items 5 and 8E.

Mr Barker reported on the performance and strategy of the UBS multi-asset portfolio for the quarter that ended on 30 June 2004 with reference to the presentation report which had been circulated separately with the papers for the agenda. He discussed the underperformance in certain sectors of the portfolio and the asset allocation for UK Gilts and Index Linked Bonds. He responded to questions about the Fund’s holdings in the latter assets. Mr Pickard responded to questions about the Fund’s overseas equities’ holdings.

RESOLVED: to receive UBS Asset Management’s quarterly valuation and presentation reports for the quarter ending 30 June 2004.

51/04 BAILLIE GIFFORD

(Agenda Item 10E)

The Independent Financial Adviser reported orally on the performance and strategy of Baillie Gifford drawing on the tables at items 5 and 8E.

Messrs McCombie and Robb reported on the performance and strategy of the Baillie Gifford portfolio for the quarter that ended on 30 June 2004 with reference to the presentation report which had been circulated separately with the papers for the agenda. Mr Robb discussed the underperformance for the last quarter. Messrs McCombie and Robb responded to questions.

RESOLVED: to receive Baillie Gifford’s quarterly valuation and presentation reports for the quarter ending 30 June 2004.

52/04 SUMMARY BY THE INDEPENDENT FINANCIAL ADVISER

(Agenda Item 12E)

The Independent Financial Adviser said that he had nothing further to add to the comments he had made earlier in the meeting.

ITEMS FOLLOWING THE RE-ADMISSION OF THE PRESS AND PUBLIC

53/04 DRAFT ANNUAL REPORT AND ACCOUNTS 2003/04

(Agenda Item 13)

The Committee considered the draft Annual Report and Accounts for 2003/04 (PF13). The Annual Report and Accounts showed the final accounts for the Pension Fund for the year ended 31 March 2004 and provided details on how the Fund operated, including sections on membership and investments. It also incorporated the Statement of Investment Principles which had been updated in the light of changes that had taken place during the year. These changes had been highlighted by being shaded in grey.

RESOLVED: to receive the draft Annual Report and Accounts for 2003/04 and to agree the revised Statement of Investment Principles.

54/04 PENSION FUND INVESTMENT AND ADMINISTRATION EXPENSES OUT-TURN FIGURES FOR THE YEAR ENDED 31 MARCH 2004

(Agenda Item 14)

The Committee considered a report (PF14) which reviewed the actual costs against the budget submitted for both Investment and Administration for 2003/04.

RESOLVED: to receive the report and note the outturn position.

55/04 LOCAL GOVERNMENT PENSION SCHEME REGULATIONS

(Agenda Item 15)

The Committee received a report (PF15). Since the report had been written, the Head of Finance reported that an employee of the County Council had also recently applied under the Regulations.

RESOLVED: to defer consideration of the report so that the Committee could consider an updated report incorporating an additional application and the other issues raised in the report at its next meeting.

56/04 FUNDING STRATEGY STATEMENT

(Agenda Item 16)

The Committee considered a report (PF16) which updated members on the workshop held on 14 July 2004 and highlighted the key issues identified and the proposed approach to them.

RESOLVED:

(a) t
o note the feedback from the workshop;

(b) to agree the following amendments to the draft Funding Strategy Statement:

    • Page 6, section "Funding Strategy"

(1) Add to the end of the first paragraph, first sentence

", subject to review in the light of further advice from the Office of the Deputy Prime Minister."

(2) Clarify "sound covenant" in the third paragraph, line three

    • Page 9, section "Identification of risks and counter measures", sub-paragraph "Solvency Measure"

Delete the existing wording in the paragraph and replace with

"The Administering Authority recognises that allowing for future investment returns in excess of those available on government bonds introduces an element of risk, in that those additional returns may not materialise. The Administering Authority's policy will be to monitor the "low risk position" by calculating, at each actuarial valuation, the liabilities assuming future investment returns are in line with yields on long term gilt edged investments and to ensure that the solvency measure being used as part of the Funding Strategy is realistic compared to this "low risk position".";

(c) to endorse the next steps set out in the report.

57/04 EARLY RETIREMENT COSTS

(Agenda Item 17)

The Committee was advised that, following the appointment of Hewitt Bacon and Woodrow as the new Actuaries to the Pension Fund, officers had sought their advice in respect of the continued appropriateness of the current calculation of the hidden costs of early retirement. The Actuaries had reported back informally to the Employers’ Meeting on 9 February 2004. At that stage, they reported a likely increase in employers’ costs of between 30 and 40%, with an implementation date of 1 April 2005.

The Committee was further advised that the hidden costs of early retirement arose from a number of factors. An obvious factor was that the Fund was paying out pension for a number of years before it had expected to do so, and for which no contributions would be collected. Other factors were:

  • the loss of the employers’ contribution, which in part was contributing to past service deficits,
  • the loss of assumed investment returns on the assumed employee and employer contributions,
  • loss of assumed investment returns on lump sums paid early,
  • and in all cases where the pension was not reduced, then there was the cost of paying the full pension through the remaining life of the pensioner.

The Pension Fund had amended its policy in 1998, following an Audit Commission report on the hidden costs of early retirement, and having taken advice from the then Actuary, Watson Wyatt. Watson Wyatt had based their advice on factors produced by the Government Actuary Department. Hewitt Bacon and Woodrow had used a model developed by the Association of Consulting Actuaries. This model was consistent with the assumptions Hewitt Bacon and Woodrow would incorporate into their work on the 2004 Fund Valuation.

Hewitt Bacon and Woodrow had now submitted their final report on this issue. They had found that the results produced by the current model were inconsistent with results they themselves had produced. The differences reflected changes in current market conditions, and new assumptions, particularly in relation to the expected life of existing pensioners. Hewitt Bacon and Woodrow had stated that the current factors used to determine the hidden costs of early retirement needed to be increased by 35%. Officers had accepted this advice, and written to all employers accordingly, alerting them to this increase to be introduced from 1 April 2005, allowing for the planning timescales associated with agreeing early retirements. Officers would monitor the number of cases being put forward between now and 1 April 2005 to ensure there was no sudden rush of requests to beat the increased costs. Hewitt Bacon and Woodrow would allow for this decision in finalising the 2004 Valuation, thus reducing the pressure on the employers’ contribution rate.

RESOLVED: to note the report and endorse the officers’ action.

58/04 SOCIALLY RESPONSIBLE INVESTMENT AND CORPORATE GOVERNANCE ISSUES

(Agenda Item 18)

The Head of Finance reported that there were no socially responsible investment and corporate governance issues to report.

59/04 ANNUAL FORUM

(Agenda Item 19)

The Committee was advised that the Head of Finance had no issues arising from the last Annual Forum to report.

RESOLVED: to ask the Head of Finance to invite Mr T Crossley, the Office of the Deputy Prime Minister, to speak at the next Annual Forum due to be held on 30 November 2004 at 10.00 am.

60/04 DATES OF THE COMMITTEE IN 2005/06

(Agenda Item 20)

The Committee was advised that dates for the meetings of the Committee in 2005/06 were:

27 May 2005 )
26 August 2005 ) all starting at 10.00 am at County Hall.
25 November 2005 )
24 February 2006 )

RESOLVED: to note the dates.

in the Chair

Date of signing 2004

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