ITEM PF17
PENSION FUND COMMITTEE – 27 AUGUST 2008
PENSION FUND INVESTMENT AND ADMINISTRATION EXPENSES OUTTURN REPORT FOR THE YEAR ENDED 31 MARCH 2008
Report by Assistant Chief Executive & Chief Finance Officer
Introduction
1. In February 2007 the Pension Fund Committee agreed a budget in respect of the Pension Fund’s investment and administration expenses for the 2007/08 financial year. The production of an annual budget is in accordance with a recommendation of best practice set out in the CIPFA Principles for Investment decision making in the Local Government Pension Scheme.
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 any material variations are explained below.
Investment Management Expenses
3. The largest component of the Investment Management expenses budget is the external fund management fees. Although a budgeted sum is agreed for this item it is impossible to estimate this with any degree of accuracy. The actual fees paid are linked to the market values of the assets being managed and predicting the direction of markets is an impossible task. The budgeted sum for management fees was £3,200,000 but the actual fees were £3,059,000. The difference was mainly due to the fall in the market value of assets managed over the twelve month period ended 31 March 2008. It is worth noting that this does not represent the full fees paid by the Fund. Some asset returns, e.g. hedge funds, are net of fees.
4. The £65,000 underspend on the Global Custody Fee budget was due to a new fee structure being negotiated after the budget was agreed. Officers and the Independent Financial Adviser met the Pension Fund’s Global Custodian, BNY Mellon, in August 2007. BNY Mellon reported that their fees had come down substantially due to both economies of scale and custody becoming less paper generated and more electronically driven. BNY Mellon agreed to backdate and apply their latest fee scale from 1 July 2007.
5. With regard to the Independent Financial Adviser and Consultancy Fee budgets it is easier if these are considered together for 2007/08. The Independent Financial Adviser’s budget was exceeded because he undertook certain tasks, which would normally have been carried out by mainstream external consultants, such as Mercers or Hymans Robertson. The main example of this was the comprehensive investment management review project, which the Independent Financial Adviser carried out for £30,000 following a tender exercise. His tendered fee was substantially lower than the other tenders.
6. The Member Training budget was underspent by £10,000. This was due to many of the training events attended by the members during 2007/08 being free or sponsored. Despite the underspend on this budget, it has been decided to maintain it at £12,000 for 2008/09.
7. The income fees derived from stock lending were much higher than forecast, £147,000 against the budgeted figure of £80,000. This was due to a higher volume of stock being lent out and the implementation of a more favourable fee split. From 1 September 2007 Oxfordshire’s share of the stock lending fees increased from 60% to 70%. Following the recent custody tender, when BNY Mellon were reappointed, it has been further increased to 75%.
Scheme Administration Expenses
8. The most significant under spend on the administration budget was for staffing costs. Some staff had left the section ahead of the move to Shared Services and there were further changes following our relocation on 1 January 2007. Recruitment has been partially successful and at the time of writing this report there are five vacancies within the team, although hopefully two will be filled shortly following a recent recruitment exercise.
9. The budget for postage had been reduced for the financial year to take account of under spending in previous years. However, the need to put in a place a courier service and the additional mailings as a result of the implementation of the New Look LGPS has resulted in an over spend of £6,000.
10. Actuarial fees were overspent by £11,000. Some of this additional cost arises from the information and guidance for officers in dealing with some complex outsourcing issues. However, the main additional costs are attributable to the additional work needed to undertake the valuation exercise. This additional work in ensuring the accuracy of data arose because of backlog of work within the administration team.
11. Other costs were over spent by £19,000. The main elements of this over spend were legal costs £10,000 because of officers needing to take additional legal advice when dealing with outsourcing. The remaining £9,000 over spend was the recharge for accommodation, where incorrect information at the beginning of the year had resulted in an incorrect budget provision being made.
RECOMMENDATION
12. The Committee is RECOMMENDED to receive the report and note the out-turn position.
SUE SCANE Assistant Chief Executive & Chief Finance Officer
Background Papers: Nil
Contact Officers: Paul Gerrish, Head of Finance & Procurement - (01865) 815401 Sally Fox, Pensions Administration Manager - (01865) 797111
August 2008
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