Clwyd Pension Fund
Annual Report 2013 - 14
CLWYD PENSION FUND – AWARDS
Professional Pensions Awards – September 2008
Won – Trustee Development (Private) & (Public)
IPE Awards November 2008
Won – Best Investment in Emerging Markets (Themed Awards – Europe-wide)
Won – Best Property Investment (Themed Awards – Europe-wide)
Won – Best Specialist Investment (Themed Awards – Europe-wide)
Runner-up – Commodities (Themed Awards – Europe-wide)
IPE Awards December 2010
Won – Best Investment in Commodities (Themed Awards – Europe-wide)
Won – Best Use of Alternatives (Bronze Awards – Europe-wide)
Won – Best Small Pension Fund (Silver Awards – Europe-wide) – Joint Winner
Runner-up – Best Investment in Emerging Markets (Themed Awards – Europe-wide)
Runner-up – Best Specialist Investment (Themed Awards – Europe-wide)
IPE Real Estate Awards – May 2011
Won – Best Pension Fund in UK/Ireland (Country Awards)
Won – Best Opportunistic Investment (Themed Awards – Europe-wide)
Won – Best Small Real Estate Investor in Europe (Gold Awards – Europe-wide)
Runner-up – Best European Real Estate Investor (Platinum Award – Europe-wide)
IPE Awards November 2011
Won – Best Use of Real Estate (Themed Awards – Europe-wide)
Runner-up – Best Use of Specialist investment Managers (Themed Awards – Europe-wide)
Runner-up – Best Use of Hedge Funds (Themed Awards – Europe-wide)
IPE Real Estate Awards – May 2012
Won – Best Portfolio Construction (Themed Awards – Europe-wide)
Won – Best Medium Real Estate Investor in Europe (Gold Awards – Europe-wide)
Runner-up – Best Pension Fund in UK/Ireland (Country Awards)
Runner-up – Best Indirect Investment Strategy (Themed Award – Europe-wide)
Runner-up – Best Opportunistic Investment (Themed Award – Europe-wide)
IPE Awards – November 2012
Won – Best Public Sector Fund in Europe
Won – Best use of Alternatives
Runner-up – Best Fund in Europe
Runner-up – Best use of Commodities
Runner-up – Best use of Emerging Markets
Runner-up – Best use of Hedge Funds
Runner-up – Best use of Real Estate
Runner-up – Best use of Specialist investment Managers
IPE Real Estate Awards – May 2013
Won – Best Institutional Investor in UK/Ireland
Contents
Introduction by the Chair of the Clwyd Pension Fund Committee
2
Governance Structure of the Clwyd Pension Fund
4
Treasurer and Administrator’s Report
9
Independent Advisor/Consultant Annual Report
12
Management of Pension Fund Risk
18
Financial Performance
20
Cash Flow
24
Investment and Funding
28
Sustainability Policy
35
Administration Update
37
Other Information
44
Regulatory Documents
Clwyd Pension Fund Accounts 2013/14
45
Governance Policy Statement
73
Funding Strategy Statement
84
Statement of Investment Principles
101
Communication Policy Statement
133
Statement from Wales Audit Office
140
Introduction
I have pleasure in introducing the 2013/14 Annual Report, as the Chair of the new Clwyd Pension
Fund Committee.
Since last year’s Annual Report there has been a lot of change in how the Fund is managed and
advised. I would like to draw your attention to the Governance Strategy Statement within this
Annual Report, which explains the new governance arrangements, and also thank the members
and advisor of the previous Panel.
The new Clwyd Pension Fund Committee has decision making powers documented in the
Council’s constitution, wider employer representation and voting rights for all, including the
member representative.
Senior Officers with delegated responsibility for the day to day management of the Fund have also
changed. Kerry Feather, Head of Finance of Flintshire County Council and Treasurer and
Administrator for the Fund retired. The role is now shared between Helen Stappleton, Chief Officer
(People and Resources) as Administrator to the Fund and Gary Ferguson (Corporate Finance
Manager and S151 Officer), as Treasurer to the Fund. A joint commentary on progress with the
management of the Fund is included in this Annual Report.
It is vital that all those involved with the governance of the Fund have the necessary knowledge
and skills to understand any advice given and to make informed decisions. Both Committee
members and Senior Officers are receiving training to satisfy the requirements of the CIPFA
Knowledge and Skills Code of Practice and the Fund is developing a plan for on-going training.
A key benefit of the new Committee is transparency for our stakeholders. The Committee agenda
papers for the first Committee meeting on the 22nd July 2014 are on the Flintshire County Council
web-site. There is a standard format which includes reports on governance, administration and
investments and funding. The reports cover both updates relating to general LGPS issues, the
economy and financial markets as well as reports on the investment, funding and administration
performance of the Fund itself including progress with the Service Plan.
There are a number of key challenges for the Committee, officers and advisers to address through
2014/15:
Managing the outcome of the Government’s consultation on the opportunities for
collaboration, cost savings and efficiencies.
Implementing the requirements of the Public Sector Pension Act 2013 for a new Local
Board, whose role is to secure compliance with legislation and ensure the effective and
efficient governance and administration of the Fund.
Reviewing current arrangements against the new Pensions’ Regulator Public Sector Code
of Practice.
Reviewing and monitoring the Fund’s investment and funding strategy.
Ensuring that the Committee and officers continue to develop their knowledge and skills to
enable the Administering Authority to successfully manage a complex Fund which is now
over £1.2bn in value and has 35,000 members.
2
This Annual Report attempts to demonstrate to stakeholders how the Fund is addressing these
challenges and managing risks and includes all the statutory documents which underpin the
strategic management of the Fund together with commentary on the outcomes and performance
for 2013/14 including:
An overview of the Fund by the Treasurer and Administrator
Management of Pension Fund Risks
An independent Annual Report from the Fund’s Independent Advisor/Consultant.
Details on Investment strategy and performance
Audited Pension Fund Accounts 2013/14
Pension Administration Update.
Further information can be found on the Fund’s web-site
clwydpensionfund.org.uk. Additionally,
employer and employee representatives are invited to an Annual Joint Consultative meeting each
November.
My intention, as the Chair, is to seek continuous improvement in line with the Fund’s Mission
Statement. I hope you find the Annual Report informative and welcome any comments or
questions on the content.
Cllr Alan Diskin
Chair of the Clwyd Pension Fund Committee
September 2014
Mission Statement
We will be known as forward thinking, responsive, pro-active and
professional providing excellent customer focused, reputable and
credible service to all our customers.
We will have instilled a corporate culture of risk awareness, financial
governance, and will be providing the highest quality, distinctive
services within our resources.
We will work effectively with partners, being solution focused with a can
do approach.
3
Governance Structure of the Clwyd Pension Fund
Administering Authority: Flintshire County Council
In May 2014 the Fund’s governance arrangements were reviewed and the Council established a
formal Pension Fund Committee, supported by a Pensions Advisory Panel.
These changes follow best practice, as well as the recommendations of an independent review
undertaken by CIPFA in 2010, by transferring the management of the Fund from the Head of
Finance, supported by the Clwyd Pension Fund Panel, to the Committee.
Additionally, the representation of stakeholders, with full voting rights, on the Committee was
widened. The membership of both the new Committee and Advisory Panel are shown below along
with that of the previous Panel.
Clwyd Pensions Fund Committee
Committee Members
Voting Rights
Flintshire County Council
Cllr Alan Diskin (Chair)
Cllr Haydn Bateman (Vice Chair)
Cllr Ron Hampson
Cllr Brian Dunn
Cllr Matt Wright
Denbighshire County Council
Cllr Huw Llewelyn Jones
Wrexham County Borough Council
Cllr Steve Wilson
Scheduled Body Representative
Cllr Andrew Rutherford
Member Representative
Mr Steve Hibbert
Advisory Panel
Panel Members
Chief Officer ( People and Resources) (FCC)
Helen Stappleton
Corporate Finance Manager/ S151 Officer (FCC)
Gary Ferguson CPFA
Clwyd Pension Fund Manager (FCC)
Philip Latham
Investment Consultant (JLT Group)
John Finch ASIP FCII
Fund Actuary (Mercer)
Paul Middleman FIA
Independent Advisor (Aon Hewitt)
Karen McWilliam FCIPP
Clwyd Pension Fund Panel (To May 2014)
Clwyd Pension Fund Panel
Voting Rights
Flintshire County Council
Cllr Alan Diskin (Chair)
Cllr Haydn Bateman (Vice Chair)
Cllr Ron Hampson
Denbighshire County Council
Cllr Huw Llewelyn Jones
Wrexham County Borough Council
Cllr Steve Wilson
Member Representative
Vacant
Independent Advisor/ Consultant
Mr Bob Young (YCS UK Ltd)
4
Investment Managers and AVC Providers
Investment Managers
Address
Aberdeen Asset Management Plc
Bow Bells House, 1 Bread Street, London
BlackRock Investment management (UK) Ltd
12 Throgmorton Avenue, London
BlueCrest Capital Management (UK) LLP
40 Grosvenor Place, London
Duet Group
27 Hill Street, Mayfair, London
Insight Investment
160 Queen Victoria Street, London
Investec Asset Management
2 Gresham Street, London
Liongate Capital Management
103 Mount Street, London
Pioneer Alternative Investments UK Ltd
Portland House, Bressenden Place, London
Pyrford International Ltd
95 Wigmore Street, London
SSARIS Advisors LLC
20 Churchill Place, London
Stone Harbor Investment Partners (UK) LLP
48 Dover Street, London
Wellington Management International Ltd
Cardinal Place, 80 Victoria Street, London
AVC Providers
Prudential
Lancing, BN15 8GB
PO Box 177, Walton St., Aylesbury, Bucks.,
Equitable Life (
closed to new entrants)
HP21 7YH
Other
Service
Address
Custodian: Bank of New York Mellon
160 Queen Victoria Street, London
Exchange Station, Tithebarn Street,
Actuary: Mercer Ltd
Liverpool
Performance Measurement: WM Company
525 Ferry Road, Edinburgh
Unit 4, Evolution, Lakeside Business Village,
External Auditors: Wales Audit Office
St. David’s park, Ewloe
Bank: National Westminster Bank plc
48 High St., Mold
Legal Advisors:
This varies depending on the issue and can include the Flintshire County Council in-house
legal team as well as organisations listed on the Framework Agreement (see below).
Framework Agreement – the following can be contacted for advice as and when required.
Organisation
Address
Squire Sanders
7 Devonshire Square, London
Aon Hewitt
40 Torpichen Street, Edinburgh
Mercer Human Resource Consulting
Tower Place West, London
JLT Benefit Solutions
7 Charlotte Street, Manchester
Allenbridge
60 Goswell Road, London
bFinance
26-27 Oxendon Street, London
5
Clwyd Pension Fund Panel Meetings Held During 2013/14
Panel Agenda Meetings
Councilor Attendees
20th May 2013
Cllr Haydn Bateman
Cllr Ron Hampson
Cllr Steve Wilson
Cllr Huw Llewelyn Jones
Cllr Ted Evans (deceased)
Cllr Brian Dunn (non-voting)
13th August 2013
Cllr Alan Diskin
Cllr Haydn Bateman
Cllr Ron Hampson
Cllr Steve Wilson
Cllr Huw Llewelyn Jones
Cllr Brian Dunn (non-voting)
27th November 2013
Cllr Haydn Bateman
Cllr Ron Hampson
Cllr Steve Wilson
Cllr Huw Llewelyn Jones
Cllr Ted Evans (deceased)
Cllr Brian Dunn (non-voting)
26th February 2014
Cllr Haydn Bateman
Cllr Ron Hampson
Cllr Steve Wilson
17th September 2013 (Special Meeting)
Cllr Alan Diskin
Cllr Haydn Bateman
Cllr Ron Hampson
Cllr Steve Wilson
Cllr Brian Dunn
Investment Manager Meetings
Councilor Attendees
1st/2nd May 2013
Cllr Haydn Bateman
Cllr Ron Hampson
7th November 2013
Cllr Alan Diskin
Cllr Haydn Bateman
Cllr Ron Hampson (non-voting)
Cllr Steve Wilson (non-voting)
Cllr Huw Llewelyn Jones (non-voting)
Cllr Brian Dunn (non-voting)
5th February 2014
Cllr Alan Diskin
6
Clwyd Pension Fund Training Policy 2013/14
As an administering authority of the Local Government Pension Scheme, this council recognises
the importance of ensuring that all staff and members charged with financial management and
decision-making with regard to the pension scheme are fully equipped with the necessary
knowledge and skills to discharge the duties and responsibilities allocated to them. It therefore
seeks to appoint individuals who are both capable and experienced and it will provide and or
arrange training for staff and members of the Pension Fund Panel (now Committee) to enable
them to acquire and maintain an appropriate level of expertise, knowledge and skills.
In 2011/12, the Fund adopted the CIPFA Code of Practice on Knowledge and Skills on Pension
Finance for Members and Officers. Training in 2013/14 continued to satisfy the requirements of
this Code of Practice and progress will be reported in future Annual Reports. The Clwyd Pension
Fund is committed to providing appropriate training to Members on the Committee through various
presentations, seminars and collaboration with other Local Government Pension Funds.
Date
Training
Provider
May 2013
Sustainable Private Equity
Bridges
Investment Issues
In House
Collaborative Working
In House
Funding Strategy and Flightpath
Mercers
June 2013
Introduction to LGPS
CIPFA
August 2013
Investment Issues
In House
LGPS Consultations
In House
Welsh Funds Working Together
In House
September 2013
Investment Summit
LGC
November 2013
Investment Issues
In House
Audit
In House
Funding
In House
Private Equity
Capital Dynamics
Infrastructure
Capital Dynamics
Clean Technology
Capital Dynamics
December 2013
Annual Conference
LAPFF
February 2014
Investment Seminar
LGC
7
Each of the quarterly panels in Mold provided members with presentations and reports which
covered the following topics:
Current Investment Issues
Governance and LAPFF Updates
Economic Reviews
Scheme Consultation
Collaboration
Risk Assessments
Audit of Pension Fund Accounts
Transition Management
Detail of all training received is presented annually to the Clwyd Pension Fund Panel, now
Committee, identifying the number of hours of training completed by each member. For the year
to March 2014 the following number of training hours was recorded:
Chair of Panel
66 hours
Vice Chair
46 hours
Other Panel Members 58 hours
Substitutes
53 hours
Clwyd Pension Fund Contact Details
Name
Post
Contact details
Philip Latham
Clwyd Pension Fund Manager
(01352) 702264
Helen Burnham
Pensions Administration Manager
(01352) 702872
Debbie Fielder
Pensions Finance Manager
(01352) 702259
Alwyn Hughes
Pensions Finance Manager
(01352) 701811
Pensions Administration
xxxxxxxx@xxxxxxxxxx.xxx.xx
(01352) 702761
Team
Pensions Finance Team
xxxxxxxxxxxxxxxxxxx@xxxxxxxxxx.xxx.xx
(01352) 702275
8
Joint Report from the Administrator and Treasurer
Introduction
The financial year 2013/14 was, in the main, a year of preparing for change. The Fund participated
in the national debate covering several changes to the LGPS, reviewed its governance structure,
prepared to implement LGPS 2014 and a new ‘flight-path’ strategy to manage funding risks. We
would like to set out these main issues which have been addressed during the year and give a
progress update for 2014/15.
The Clwyd Pension Fund Panel met quarterly during 2013/14 but the Panel has now been replaced
by the Clwyd Pension Fund Committee. The agenda covers three main areas: Governance,
Investment and Funding and Administration and Communication and our report follows these three
main themes.
Governance
THE FUTURE STRUCTURE OF THE LGPS
The Government has been considering options for structural reform to the management of the
LGPS in England and Wales since Lord Hutton chaired the Independent Public Services Pensions
Commission in 2010. The Department of Communities and Local Government (DCLG) issued a
package of proposals for consultation on 1st May 2014. The package of proposals set out in the
consultation is:
Establishing a common investment vehicle for listed and alternative assets to reduce
investment costs
Reduce investment fees by investing in listed assets on a passive basis
Keeping asset allocation decisions at a local level
Not to pursue fund mergers at this time
Not to consult on administration reform at this time.
In summary the response from the Fund was supportive of the package of proposals providing
there is no compulsion and decisions are made locally on a ‘comply or explain’ basis. A response
from the DCLG on the consultation outcome is expected in late September 2014.
LGPS 2014
The Government introduced LGPS 2014 from 1st April 2014. Although the Fund had done all it
could to prepare to administer the new CARE scheme there have been some teething problems
due to the late issuance of Regulations. Those stakeholders affected have been kept informed.
PUBLIC SERVICE PENSIONS ACT 2013 AND LOCAL PENSIONS BOARDS
The Fund has responded to a DCLG Consultation on draft Governance Regulations. This follows
The Public Service Pensions Act 2013 which includes provisions for the following ‘bodies’ within
the LGPS:
Responsible Authority – Secretary of State
Scheme Manager – Administering Authority
Local Pension Board – New local scrutiny body
Scheme Advisory Board – New national advisory board.
9
Each LGPS administering authority is required to establish a Local Pension Board by 1st April
2015. The role of the Board will be to ensure the administering authority is governing and
administering the Fund in line with legislation and in an effective and efficient manner. The Board
must have an equal number of employer and employee representatives. The Council will consider
a Protocol for the Local Board in November 2014 and it will be discussed at the Fund’s Annual
Employer & Employee Meeting (AJCM).
WELSH COLLABORATION
In the event of the above potential changes proposed by the Government for England and Wales
the work on welsh collaboration has been put on hold. However, subject to these outcomes it is
intended to implement the finding of the report by the Society of Welsh Treasurers (Pensions Sub-
Group) on ‘Working Together’. This will include considering a full business case for managing
investments on a collective basis.
CLWYD PENSION FUND GOVERNANCE
The introduction to this Annual Report by the Chair of the Committee outlined the changes to our
governance structure which now complies with best practice. The creation of an Advisory Panel
and the appointments of a new Independent Adviser and Investment Consultant should enhance
the governance of the Fund. We are making good progress with most aspects of the 2014/15
Service Plan which was presented to the first Committee meeting 22 July 2014.
The external auditors, Wales Audit Office, have not raised any major issues about the
management of the Fund and their unqualified opinion in the 2013/14 accounts is included in the
Annual Report.
There was one internal audit relating to 2013/14 on Clwyd Pension Fund Administration and one
on Pension Investments, the findings of which have been reported to the Committee. There was
one ‘high risk’ recommendation which related to disaster recovery and one ‘medium risk’
recommendation relating to the absence of a documented risk register. Both of these of are
included in the 2014/15 Service Plan. This Annual Report includes a summary of our main risks,
along with what we have done, work in progress and the future work planned on mitigating these
risks.
Investment and Funding Strategy
This Annual Report includes detailed comment and analysis on both investment and funding
performance along with the Fund’s Statement of Investment Principles and Funding Strategy
Statement. In summary, 2013/14 saw a continued small growth in the assets of the Fund to £1.2bn
and a positive investment return of +2.1%. The funding position improved from 68% as at March
2013 to 70% as at March 2014. In early September 2014 the funding position had fallen back to
69%.
The Fund’s ‘flight-path’ strategy, which manages interest rate and inflation risks through liability
matching investing, commenced on 1st April 2014. It is very early days for this strategy. Further
information will be provided in future years Annual Reports.
In terms of investment strategy and fund managers there are parts which are not working as well
as hoped, as explained in the Independent Adviser/Consultant report. The new investment
consultant is reviewing the investment strategy and we will be making recommendations to the
November 2014 Committee.
10
The Committee receive quarterly reports on the financial markets, the fund’s investment and fund
manager performance along with updates on the funding position and flight-path strategy. Unless
we consider any part of these reports need to be withheld for commercially sensitive reasons they
can be found on Flintshire County Council’s web-site.
Administration & Communication
A Pensions Administration update is included in the Annual Report which provides details of
regulation changes, communications with members, pensioners and employers, website updates
and key performance statistics. This illustrates the variety, complexity and the quantity of work
undertaken by the pension service during the year.
The Pensions Committee receive two standard reports each quarter, a ‘LGPS Issues’ report, which
includes the impact on the Fund and/or employers, and an update on the Fund’s administration
and communication performance.
There will be on-going work with our larger employers on data quality and correcting a backlog of
historic records during this year, in preparation for Pension Regulator’s new Code of Practice.
The development of an Administration Strategy is on-going which will provide more transparency
to all stakeholders on the performance of the administration service and employers.
Conclusion
We would like to thank all those involved with management and administration of the Fund for their
hard work and dedication during the year.
Finally, we invite any stakeholder to contact us with any comments or suggestions for improvement
on any aspect on the management of the Fund.
Helen Stappleton, Chief Officer (People & Resources)
Administrator to the Fund
Gary Ferguson, Corporate Finance Manager (Section 151 Officer)
Treasurer to the Fund
September 2014
11
Independent Adviser/ Consultant
Annual Report 2013/14 1.
The purpose of this commentary is to provide an independent annual appraisal of the
administration, governance and performance of the Clwyd Pension Fund. As my appointment
to the Independent/Adviser role commenced on 1 July 2008, this report covers my fifth and
last full year in this dual capacity role. Overall, the year 2013/14 was one of review, reflection
and reassessment both in terms of world markets and the Local Government Pension
Scheme (LGPS) itself.
2.
Over recent years, the LGPS environment has been characterised by an increasing flow of
regulatory documents on funding, risk, policy and governance. More recently, there have
been various initiatives under the broad banner of “working together”, ranging from potential
fund amalgamations to simple increased collaboration between LGPS funds, which are all
largely concerned with reducing costs, particularly the level of fees paid to investment
managers. At the same time, there had been an ongoing review of the scheme to make it fair
and affordable, which ultimately resulted in the new LGPS 2014.
3.
As part of this environment of change and initiatives, the first half of 2013/14 saw LGPS funds
inundated with documentation – a consultation paper on the detail of LGPS 2014, a
discussion paper on new LGPS governance arrangements in England and Wales and a "Call
for Evidence" on the future structure of the LGPS. Whilst the consultation paper on LGPS14
sought responses on a number of the detailed regulations proposed for implementing the
new scheme and, in this sense, was a technical consultation with LGPS pension
administration officers, the other two papers were more fundamental, with potentially far-
reaching consequences for LGPS funds. However, all required detailed and careful
responses, putting the in-house teams on both investments and pension’s administration
under particular pressure.
4.
On governance it was an accepted fact that practices amongst LGPS funds varied
considerably and that the Public Service Pensions Act 2013 had provided a broad framework
for a common approach. The discussion paper raised various questions and sought views
around the implementation and operation of this framework within the LGPS. The Fund
responded accordingly but broadly accepted the move to a formal Committee structure and
this is currently being implemented.
5.
However, many of the details around national oversight and additional scrutiny at a local level
are still being fine-tuned. The results of these deliberations should become clear in later
2014, although it is already known that each LGPS authority will be required to establish a
formal set of internal controls for administering and managing its scheme, in addition to all
the information on risk currently being provided in each fund’s Statement of Investment
Principles and its reporting requirements in the Annual Accounts under IFRS 7.
6.
The key paper, however, was clearly the "Call for Evidence" on the future structure of the
LGPS, which followed on from some peripheral comments in the Hutton report about the
quality and consistency of LGPS data. These were picked up in early 2013 by the Local
Government Minister Brandon Lewis, who talked about the need for "robust data" and not
shying away from “a smaller number of funds” if this could be shown to improve efficiency
and cost-effectiveness. This national initiative effectively put on hold the already long-running
project aimed at examining possibilities for "Collaborative Working in Wales", which itself had
been the subject of various data collection exercises and consultations.
12
7.
The "Call for Evidence" paper itself was based around a set of objectives and a series of
questions that respondents were asked to address. Whilst these objectives were designed
primarily to generate discussion and debate, they did seem a slightly odd collection, ranging
from the very general (dealing with deficits) to the very specific (providing greater investment
in infrastructure). At the same time, it was not always clear how the questions set related to
these objectives, although there was clearly some overlap. In addition, there was no
reference to key funding and investment considerations such as liabilities and their control,
and no mention whatsoever of risk.
8.
Pension funds are extremely complex vehicles, where all the moving parts are inter-linked.
Funding level, strategy, risk and return targets, performance and fees etc. are all inter-
dependent and cannot be looked at in isolation. In fact, some of the objectives identified were
potentially contradictory. In summary, there was concern that the context set by the
objectives and questions failed to appreciate the complexity of pension funds, with little
apparent consideration given to the wider fund picture, the relationships between various
investment objectives and the impact of some of these objectives on others. The Fund
response made these points whilst attempting to cover all the objectives and questions
comprehensively and constructively.
9.
The "Call for Evidence" was followed in later 2013 by the Government appointment of a
consultant to evaluate various options for change, resulting in a current Government
consultation exercise on the future of the LGPS. Whilst the outcomes from this have not been
delivered yet, forced fund mergers no longer appear to be on the agenda, with the
Government focus now more on the creation of Common Investment Vehicles and the use
of more passive management. The Fund continues to participate in this ongoing debate and
is monitoring potential outcomes very carefully.
10. Clearly the above events consumed a lot of resource in 2013/14 but, despite these
distractions, the business of running the Fund on a day to day basis had to be maintained by
the fund finance and administration teams. Agreed staffing structures are now in place but,
as noted in last year's report, recruiting staff with the appropriate LGPS expertise continues
to be a challenge. Consequently, there remained during the year a number of staff within the
pension administration team covering permanent posts on temporary contracts, whilst they
received in-depth training to ensure competency in these roles. It is pleasing to note that
these positions were reviewed towards the end of 2013 and some permanent appointments
were made. However, as a result of staffing and recruitment issues in prior years, backlog
problems persist. A specific team to tackle this was established in May 2013 but again
recruiting experienced staff proved a problem and progress in reducing the backlog has
suffered.
11. It is important, however, to put all this into the context of the additional pressures faced by
the pension administration team during the year and to acknowledge its achievements. In
addition to the detailed consultation exercise noted earlier and, later in the year, preparations
for implementing effectively the new LGPS 2014, 2013/14 was also a Fund valuation year.
This involved the preparation and successful delivery of all the valuation data to the actuary
during the summer. At the same time, a revised website was launched and the
communications program maintained, continuing to receive critical acclaim from both
scheme employers and scheme members.
13
12. For the fund finance team, the year was one of real progress despite the pressures. In mid-
year the key part of the revised staff structure was completed, with the appointment to the
vacant Pension Finance Manager post, whose additional initial training was supplemented
by an intense period of meetings with many of the Fund's alternative asset managers. Clearly
this team, and the Clwyd Pension Fund Manager in particular, was also heavily involved in
the various Government responses required, in conjunction with the Fund's external
advisers.
13. In addition, the team successfully completed the first questionnaire exercise aimed at testing
investment managers' compliance with the Fund's Sustainability Policy. This policy, a key
element of the Fund's investment philosophy, recognises the relationship between good
environmental, social and governance practices and long-term business profitability. The
questionnaire exercise, probably the first of its kind amongst LGPS funds, was very well
received by managers and proved generally positive. The responses received, particularly
the weaker ones, will be pursued as part of the normal pattern of officer meetings with
managers during the coming year. This questionnaire exercise is likely to be a recurring one
and the aim of the initial piece of work was to set a benchmark for each manager in order to
measure improvement going forward.
14. However, the team's major project during the year was implementation of the Fund's
flightpath project. Last year’s report noted that in recent years overall funding levels had been
affected as much by fluctuations in liability levels as by asset performance, leading to a
growing focus on liability-drivers such as inflation, interest rates and mortality. The Fund had
already introduced broad diversification and risk diversity within the asset structure to
minimise volatility. Flightpath's applies similar principles to liabilities, through a specialist
provider on the long-term management of funding risk. After considerable in-house research
into the concept, the exercise to appoint a specialist provider commenced in late 2012. This
proved a lengthy, complex and challenging exercise, carried out in close association with the
Fund's actuary and Independent Adviser/Consultant. However, after several separate stages
and reviews, an appointment was made in late autumn 2013.
15. The implementation through Insight, the chosen provider, raised further complexities that
required resolution, but the first phase was completed successfully by 1 April 2014, as
planned. As noted previously, the flightpath project proved to be extremely challenging and
the fund finance team was absolutely correct in taking it slowly and adopting a cautious,
professional and thoroughly-researched approach, especially as the Fund was one of the
first LGPS funds to implement this strategy in full.
16. In summary, 2013/14 certainly produced a challenging environment for both pension
administration and fund finance staff as the preparations for LGPS 2014 and the wider
changes gathered pace. All performed heroically in ensuring that day to day duties were
maintained as far as possible within the staffing constraints and the additional pressures
being faced. This bodes well for 2014/15 and implementation of the changes required in
terms of governance and the scheme itself.
14
17. After the personnel changes post the 2012 elections, which produced a new Chairman and
Vice-Chairman, the Pension Fund Panel continued to gel and develop during the year, with
attendance and participation strong. It is pleasing to report that the Chairman, who had
suffered an enforced period of absence through illness returned to lead the Panel in mid-
year. Training remained a key focus. Most Panel meetings continued to include training
elements and members also attended more formal seminars and conferences. The clear aim
here is to ensure that members are kept up to date in an investment environment that is
forever evolving both in terms of approaches and products. On approaches, the obvious
example is flightpath, whilst on products, the Fund again maintained its ground-breaking
reputation through new investments in social impact-based venture capital and sub-Saharan
private equity.
18. As noted in the opening paragraph, 2013/14 was also a year of reflection and reassessment
for world markets. The March quarter of 2013 and the year 2012/13 generally were typified
by unusual exuberance, with all equity markets posting solid positive returns, the majority in
double figures, but largely on the back of a liquidity-driven environment. In response, the new
financial year saw markets pausing for thought and contemplating whether such enthusiasm
was justified for all markets.
19. Whilst certainly there appeared to be gradually improving economic news, particularly from
the US, and a return to GDP growth, albeit modest initially for most countries, this period of
reflection brought back to the fore many of the concerns that had troubled markets for the
majority of 2012. Whilst these remained centered on US debt, the slowdown in China, the
sustainability of the restructuring ambitions in Japan and especially the resolution of issues
in Europe, later developments in the Middle East, the Ukraine and Thailand added to these
worries. In short, these competing factors made for another volatile year in world markets,
with fears persisting about the strength of this recovery and whether this could be sustained,
as well as the wider political issues
20. As a result, markets overall produced only modest progress, with global equities delivering
around 6%. However, this overall position conceals a much more complex picture, with the
more considered environment in 2013/14 leading to greater discrimination between markets
and, in simple terms, producing a dichotomy in performance between developed and
developing world equities. The US and UK posted returns of 9-10% whilst Europe led the
field with a positive 18% gain. The exception to this in developed markets was Japan, where
confidence in the ability of politicians to deliver the structural reforms promised appeared to
stall and Japanese equities largely stood still in the year. In contrast, emerging market
equities faltered after the significant gains made in prior years, losing around 10% in the year
as liquidity was withdrawn. The exception here was frontier markets, the new emerging
markets, which produced strong positive returns.
21. Away from equity markets, private equity and real assets such as property and infrastructure
produced solid returns in the year, slightly above those for global equities. However,
commodities returns were negative and bonds overall were about flat, with the negative
returns from Government stock only partly offset by credit. In absolute terms, therefore, the
overall Fund return in 2013/14 is likely to be disappointing, with performance positive but only
marginally so.
22. In comparative terms too, 2013/14 is likely to be a weak year for the Fund within its peer
group of local authorities. As noted in previous reports, the Fund is structured to provide
protection when markets fall through broad diversification and a lower weighting to more
volatile assets such as equities. This was exacerbated in 2013/14 by the Fund's long-term
focus on developing markets and its deliberately low weighting to Europe in particular.
15
23. At manager level within equities, most met their targets and a number made up ground in
terms of since-inception performance, with the weaker performance overall largely down to
asset mix. Other asset categories performed largely as expected, although the hedge fund
managers, whilst offering downside protection, do continue to disappoint in terms of the
returns achieved.
24. The key disappointment elsewhere in the portfolio was the continuing weak performance of
its tactical asset allocation managers, particularly Blackrock. These three managers
comprise 12% of the Fund's assets and, within this, Blackrock is double-weighted at 6%. The
aim of these managers is to move assets between asset categories tactically to take
advantage of differing market environments and to produce a positive return from this. Whilst
the two smaller-weighted managers were flat or marginally positive and producing returns
not too far below expectations, Blackrock delivered a negative 10% in 2013/14, with the 3-
year number showing a negative 4% per annum, despite stronger performance in some
earlier years. Clearly this area of tactical asset allocation and the managers employed is one
that will require reassessment as part of the forthcoming Fund Structure review.
25. As for next year, the economic environment is improving but many of the concerns remain.
Globally, China needs careful management as its urbanisation programme and housing
investment boom continue to moderate, reducing asset price and credit growth and thus
producing a potentially deflationary outlook. Within Europe, the focus will probably be on
Germany. European growth is certainly stronger and credit demand building, but on
competiveness, Germany remains an outlier and the issue is whether it is willing to reflate
wages to create some sort of economic convergence. On the UK, the economy is booming
but spare labour capacity is reducing, potentially leading to rising wages and ultimately
inflation. In summary, market volatility looks likely to continue, as many of the concerns,
particularly the politic ones, persist and worsen, despite a generally improving economic
environment.
26. On governance, there will also be changes in 2014/15, with the demise of the Pension Fund
Panel and its replacement by a formal committee, probably with a larger membership, as
well as some sort of scrutiny body. Whilst it is hoped that there will be a good degree of
continuity through existing Panel members, clearly there are significant ongoing implications
in terms of establishing revised governance arrangements and the training of committee
members new to pension fund administration and investing.
27. Next year, therefore, is likely to be another challenging one for the in-house team and those
elected members involved with the Fund. As well as implementation of the above governance
changes and the introduction of the new LGPS 2014, towards the end of the year the Fund
will be undertaking and implementing the results of its regular Fund Structure Review, a
major and resource-intensive exercise impacting upon the Fund's advisers, officers and
elected members alike.
28. As implied by the opening paragraph of this report, my planned retirement as the Fund's
Independent Adviser/Consultant took place on 31 March 2014. This joint role has now been
split and it is pleasing to note that appointments to these positions were made early in
2014/15. John Finch of JLT was made Fund Consultant and Karen McWilliam of Aon Hewitt
appointed Independent Adviser, although this latter role has been modified slightly to place
a far greater emphasis on governance, an understandable adjustment given the changes
that are imminent. I wish them all well in their respective roles and have every confidence
that the Fund is in good hands.
16
29. Despite such a challenging year on both administration and fund matters, it is pleasing to
report further external recognition for the Fund. At the Europe-wide IP Real Estate Awards
in May 2013, the Fund won the award for Best Real Estate Investor UK & Ireland and finished
runner-up in the Best Medium-sized Real Estate Investor in Europe. Overall since 2007, the
Fund has been honoured with 21 awards and has finished as runner-up in a further 18
categories. As noted previously, these awards are not given lightly and are highly prized
throughout the UK and particularly wider Europe. Their award is a tremendous honour and a
clear acknowledgement of the Clwyd Fund’s pro-active and innovative approach. This in turn
reflects the commitment of its Panel members and their willingness to move the Fund
forward, as well as the continuity and strength of the in-house team.
30. As noted earlier, this report ends my formal connection with the Fund. This started in 1979,
although my involvement on the investment side did not commence until 1982. At that time,
the Fund was valued at just £100 million rather than its current £1.2 billion. The investment
environment has certainly changed dramatically, growing more complex year by year and
thereby increasing both the demands and workloads involved. However, from my own
perspective the work has been both enjoyable and rewarding, and the last 30 years or so
has been an amazing journey both for the Fund and for all those active in its management.
31. Finally, therefore, I would like to thank all the Chairs, Vice-Chairs and members that I have
worked with over the years. They have always been willing to listen, learn and take a cutting-
edge approach when necessary to further the Fund's progress. Politics has never been a
factor. However, my greatest acknowledgement is reserved for those officers with whom I
have worked over the years. My particular thanks go to Dave Bamber, with whom I shared
more than 20 years on the Fund, and more recently Phil Latham and Debbie Fielder. The
Fund has been very fortunate to have had such a dedicated, hard-working and professional
team in place for so long and again I wish those remaining well for the future.
R T Young
Independent Adviser/Consultant
July 2014
17
Management of Pension Fund Risks
Position Statement (September 2013 to September 2014)
Risk Management is the process of identifying risks, evaluating their potential consequences and
determining the most effective methods of controlling them or responding to them. The aim is to
reduce the frequency of risk events occurring and minimise the severity of their consequences if
they occur. Not all risk can be eliminated but it is vital that risks are recognized and recorded and
that their potential to cause loss is fully understood.
Risk Management is an integral part of the Flintshire County Council’s (the Administering
Authority) Governance Framework and Internal Control and aids informed and transparent
decisions by ensuring that risk management is embedded into the culture of the Council, with
Members and managers at all levels recognising that risk management is integral to service and
governance. Risk management is part of the Council’s system of internal control assisting in the
management and achievement of its business objectives and priorities
Whilst the Fund is under the umbrella of Flintshire’s risk management framework an external
review of the Fund’s approach to managing those risks specific to itself is planned for 2014. This
will bring together the various risks, and the ways that they can be mitigated, from separate
documents including the Service Plan, Funding Strategy, Governance Policy, Statement of
Investment Principles, and Communications Policy. Additionally, this will form an up to date risk
register that will become a live document for use within the Fund. Subject to this review a summary
of the key risks and the actions taken, or planned, to mitigate those risks, is included below:
Risk
Actions Undertaken or Planned
GOVERNANCE
What We Have Done
RISKS
Created a new pension fund committee for the Fund with decision
making powers, wider representation and voting rights.
Reviewed working practices and documented a Delegation of
Functions to Officers from the Pension Fund Committee.
Appointed an independent adviser, investment consultant and actuary
to an Advisory Panel to advise the new Committee.
Appointed a new Chief Officer responsible for the day to day
management of the Fund.
Published a Service Plan for the Fund.
Developed reports for the Pension Fund Committee.
Responded to a consultation by the Government on draft Governance
Regulations.
Work in Progress
Training of both members of the Pension Committee and senior officers
in line with CIPFA Knowledge & Skills Code of Practice.
The Near Future
Develop a risk register.
Develop the training policy and training plan.
Create and service a new Local Board, develop a protocol, appoint
employer and employee representatives and provide training.
Review current arrangements against the new Pensions’ Regulator
Public Sector Pensions Code of Practice.
Longer Term
Consider collaboration with the other seven Welsh pension funds.
Consider the impact of reorganisation of local government in Wales.
18
FUNDING RISKS
What We Have Done
Implemented the new funding plan from 1st April 2014.
Documented a Termination Policy for employers.
Implemented a ‘flight-path’ strategy to manage interest rate and
inflation risks.
Work in Progress
Monitoring the ‘flight-path’ strategy.
The Near Future
Annual review of the Funding Strategy and Flight-path.
Longer Term
Prepare for the next Actuarial Valuation in 2016.
INVESTMENT
What We Have Done
RISKS
Monitoring and reporting on the performance of the current investment
strategy and fund managers.
Made new commitments within the alternative asset classes.
Assessed the performance of fund managers against the Fund’s
Sustainability Policy.
Annually request and review Fund Manager’s Statements of Internal
Controls and report any issues to the Clwyd Pension Fund Committee.
Responded to the Government’s consultation on collaboration, cost
savings and efficiencies relating to collective investment vehicles and
passive investment.
Work in Progress
A review of the Fund’s investment strategy.
Publishing the voting records of our equity fund managers.
The Near Future
Implementation of the new long term investment strategy.
Appointment and removing of fund managers.
Implementation of a new approach to tactical asset allocation.
Review AVC arrangements.
Longer Term
Impact of the outcome of the Government’s consultation for
collaboration, cost savings and efficiencies relating to collective
investment vehicles and passive investment.
Impact of collaboration with the other seven Welsh funds on collective
investment vehicles.
ADMINISTRATION
What We Have Done
AND
Implemented LGPS 2014.
COMMUNICATION
Reviewed all pensioner records.
RISKS
Reviewed pensioner payroll service.
Implemented Communication Plan.
Work in Progress
Working with large employers on data quality.
Working with employers on updating historic records.
The Near Future
Develop performance standards for the Fund and employers.
Review implementation of communication plan.
Longer Term
Implement member self-service.
19
Financial Performance
The following provides a brief overview of the key movements within the Fund over a five year
period. More detail can be found in Investment and Funding, Pensions Administration Update, and
Fund Accounts.
Table 1.
Fund Account
2014
2013
2012
2011
2010
(Amounts £ 000's, years end 31 March )
Value of Fund at start of year
1,181,232
1,060,823
1,051,815
955,833
697,412
Increase in fund value during year
32,335
120,409
9,008
95,982
258,421
Value of fund at end of year
1,213,567
1,181,232
1,060,823
1,051,815
955,833
The increase in fund value is made up of the following:
Member and Employer related
Contributions and pension strain
68,869
68,078
66,593
68,147
68,181
Transfers in or (out)
563
3,139
(21,708)
4,898
1,726
Benefits payable
(61,137)
(56,977)
(53,789)
(53,584)
(49,978)
8,295
14,240
(8,904)
19,461
19,929
Investments (after income and fees)
Net change +/(-)
25,534
107,216
19,156
77,783
239,772
Other
Administrative and other expenses
(1,494)
(1,047)
(1,244)
(1,262)
(1,280)
32,335
120,409
9,008
95,982
258,421
Table 1 illustrates the annual increase in the Fund value over the five years ending 31st March
2014. The change in the fund value is further analysed between member and employer related
income (contributions and pension strain) or expenditure (benefits payable), net return or loss on
investments (net of any income or management fees) and other expenditure. These are detailed
further, for years ending 31st March 2013 and 2014, in the fund accounts. Transfers in or out of
the fund can vary, as shown in Table 1, significantly between years and are outside the control of
the Fund.
Chart 1.
This illustrates the
Fund value over
five
years
as
detailed in Table 1
above.
The
column segment
shown in orange
identifies
the
annual change in
Fund value and,
as shown in Table
1, is mostly due to
changes in the
market value of
investments.
20
Chart 2.
This
compares
the
difference
between
contributions received
and benefits paid (Table
1 above), but not taking
account of transfers,
over the same five year
period. From Chart 2 it
is clear that the excess
in contributions over
benefits paid is steadily
reducing. This is not
unexpected and reflects
the growing maturity of
the Fund. At this stage it
is unclear what the
outcome for 2015 will
be as there are a
number of significant
variables, namely, an increase in employer contributions following the 2013 Fund actuarial
valuation, workforce reductions across the large employers, and, auto enrolment is increasing the
number of active members.
Table 2.
Membership
2010
2011
2012
2013
2014
Number of Contributors
15,073
14,960
14,519
14,920
16,133
Number of Pensioners
8,820
9,091
9,553
9,874
10,367
Number with Preserved Benefits
5,969
6,910
7,386
7,539
8,307
Total
29,862
30,961
31,458
32,333
34,807
Table 2 details the membership of the Fund over the same five year period as Table 1. The
membership is split between active contributors, those in receipt of a pension and those whose
entitlement is preserved.
Chart 3.
This
shows
the
membership data in Table
2 graphically. Overall, the
trend in total membership
is upwards over the five
years ending 31st March
2014. However, it should
be noted that the overall
impact of auto-enrolment,
which
will
increase
membership,
and
the
contraction
in
most
employers’
budgets,
which
will
reduce
membership, cannot yet
be quantified.
21
Chart 4.
This plots the Fund value
over ten years to 31st
March 2014. Over this
period the Fund has
approximately doubled in
value. The yellow line
shows total membership
over the same period
(using right axis) and
illustrates the growth in
membership from around
24,100 to 34,800; an
increase of just over 44%.
Most discussions around
pension
funds
focus,
understandably, on their
value, however, the value
is only one part of the picture with the other part being the pension funds’ liabilities. The liabilities
of the pension fund are calculated by the fund actuary and represent the future liabilities of the
fund at a particular time. As shown above (Table 1 and Charts 1 and 4) the Fund has nearly
doubled in value over the past ten years, however, its liabilities have also increased.
Chart 5.
This shows the Fund value
(yellow bars) and liabilities
(blue bars) at each of the last
five
triennial
actuarial
valuations.
The
difference
between the values shown by
the blue and yellow bars,
represent the funding deficit of
the Fund. The 2013 Triennial
Valuations
section
gives
further details.
Historically,
all
pension
schemes focused primarily on
their assets and placed a
lower emphasis on the impact
of changes in the value of
liabilities. Many also assumed
that the fund employers would
be able to make increased
contributions over time. In
recent years, particularly after 2008, funding levels have been volatile as the performance of
assets has not matched the increase in values of liabilities. The calculation of the liability take into
account a number of elements including projections of future interest rates, inflation and longevity
of members. This is shown in Chart 5 by increased funding deficit.
From the 1st April 2014 the Fund has introduced a Liability Driven Investment (LDI) approach, for
a portion of its assets, the focus of which is to reduce funding level volatility by using investments
that are linked to two of those factors (inflation and interest rates) that are drivers in the calculation
of liabilities. These investments should track changes in these two factors whilst the remaining
assets are invested for growth.
22
2013 Triennial Valuation
Every three years the Fund is subject to a formal valuation by the Fund actuary which produces
two key outputs. Firstly, it quantifies the Funding Level i.e. the level to which the Fund’s pension
liabilities for the accrued benefits of current employees, deferred pensions and pensions in
payment are matched by the market value of the Fund’s assets. A funding level of less/ more than
100% implies that there is a deficit/ surplus in the Fund at the valuation date. Secondly, it also sets
the rate at which employers should contribute to the Fund for the following three years i.e. in this
case it is effective from 1st April 2014. Chart 5 above illustrates the Fund value and liabilities as at
each of the past five valuations.
The following table summarises the change in the financial position of the Fund from 31 March
2010 to 31 March 2013.
Summary Valuation results (£m)
31 March 2013
31 March 2010
Total assets
1,181
956
Liabilities:
Active members
762
633
Deferred members
219
131
Pensioners
752
568
Total Liabilities
1,733
1,332
Past service surplus/ (shortfall)
(552)
(376)
Funding level
68%
72%
Funding level and deficit
Although the value of total assets increased by 23.5%, the pace of growth in liabilities is greater,
with an increase between the years of 30%.
The funding objective as set out in the Funding Strategy Statement (FSS) is to achieve and
maintain a funding level of 100% of liabilities (the Funding Target). As required in the FSS a deficit
recovery plan has been put in place that requires additional contributions to correct the shortfall.
The average deficit recovery period for the Fund has been set as 18 years. The normal contribution
rate (for future service) has been set as 13.8% (11.7% 2010); the actual rate per employer will
differ from this according to their own circumstances. To address the deficit a total annual
contribution of £32.6m, increasing at 4.1% per annum, is required; again the actual rate per
employer will differ. The implied average employer contribution is 27.8% compared to the previous
average of 20.7% of pensionable pay over 20 years at the March 2010 valuation.
Further detailed information can be found in the Valuation Reports for each valuation on the Clwyd
Pension Fund website (see Governance and Investments/ Valuation Reports).
23
Cash Flow
The Fund operates a rolling three year cash flow which is estimated and monitored on a quarterly
basis. There are several unknowns within the cash flow such as transfers in and out of the fund
and also drawdowns and distributions across the Fund’s Property and Private Equity portfolio for
which the current allocation is 21% of the Fund.
Cash flow predictions for the drawdowns and distributions are reassessed annually to incorporate
the actuals for the year and any further commitments agreed during the period.
The following table shows a summarised final cash flow for 2013/14. This is purely on a cash basis
and does not take into account any movements in asset values or management investment fees
which are included in the pooled vehicles and accounted for at the year end, nor any year end
accruals.
2013/14
Estimate
Actual
Variance
£000
£000
£000
Opening In House Cash
(15,874)
Payments
Pensions
46,200
46,858
658
Lump Suns & Death Grants
14,000
12,861
(1,139)
Transfers Out
2,000
3,260
1,260
Expenses (including In House)
2,120
2,436
316
Support Services
150
166
16
Total Payments
64,470
65,581
1,111
Income
Employer Contributions
(27,000)
(27,451)
(451)
Employee Contributions
(14,000)
(14,629)
(629)
Employer Deficit Payments
(23,400)
(24,666)
(1,266)
Transfers In
(5,000)
(3,802)
1,198
Pension Strain
(200)
(1,104)
(904)
Investment Income
(2,400)
(2,901)
(501)
Total Income
(72,000)
(74,553)
(2,553)
In House Investments
Draw downs
58,864
46,624
12,240
Distributions
(52,723)
(33,148)
(19,575)
Net Expenditure /(Income)
6,141
13,476
7,335
Net Purchases /(Sales) **
(1,210)
(19,150)
(17,940)
Total Net Cash Flow
(2,599)
(14,646)
(12,047)
Closing In House Cash
(30,520)
** £17.96m was transferred to the Clwyd Pension Fund cash account as the residual redemption
from SSgA developed equity portfolio and funding of Insight LDI mandate.
24
3 Year Cash Flow Forecast
The following table shows the cash flow forecasts for the next three years to March 2017. These
are purely on a cash basis and do not take into account any movements in asset values or
management investment fees which are included in the pooled vehicles and accounted for at the
year end, nor any year end accruals. An estimate of the asset valuation has been included at the
end of the table and has been based on a targeted investment strategy which looks to produce an
overall return of 7.1% per annum. Estimates of Manager pooled investment fees are included in
the budget report which follows the cash flow report.
2014/15
2015/16
2016/17
£000
£000
£000
Opening Cash
(30,520)
(12,982)
(10,205)
Payments
Pensions
47,642
50,384
53,263
Lump Suns & Death Grants
14,000
14,700
14,800
Transfers Out
2,800
2,800
2,800
Expenses (including In House)
2,320
2,360
2,480
Support Services
240
240
240
Total Payments
67,002
70,484
73,583
Income
Employer Contributions
(27,000)
(27,019)
(27,038)
Employee Contributions
(15,200)
(15,200)
(15,200)
Employer Deficit Payments
(28,550)
(27,200)
(31,200)
Transfers In
(4,000)
(4,000)
(4,000)
Pension Strain
(700)
0
0
Investment Income
(2,800)
(3,000)
(3,200)
Total Income
(78,250)
(76,419)
(80,638)
In House Investments
Draw downs
54,459
46,053
27,133
Distributions
(69,463)
(76,291)
(66,054)
Net Expenditure /(Income)
(15,004)
(30,238)
(38,921)
Net Purchases/(Sales)*
(1,210)
(1,050)
0
Rebalancing Portfolio
45,000
40,000
45,000
Total Net Cash Flow
17,538
2,777
(976)
Closing Cash
(12,982)
(10,205)
(11,181)
Estimated Asset Valuations
1,264,724
1,354,519
1,450,690
25
Analysis of Operating Expenses
The following table shows the actual operating expenses for the Fund for 2013/14 compared to
2012/13. Increases in direct employee costs were as a result of recruitment to vacant positions
within the service area. The difference in actuarial costs was in respect of the triennial valuation
and within investment expenses, consultancy fees reflected the implementation of the Fund’s new
investment manager, Insight, who were appointed to manage the Long Term Management of
Funding Risk mandate in September 2013.
2013/14
2012/13
Net change
£000
£000
£000
Administration Expenses
Employee Costs (Direct)
781
630
151
Employee Cost (Internal Recharges)
92
82
10
Premises
97
37
60
IT (Support & Services)
233
85
148
Other Supplies & Services
110
113
(3)
Miscellaneous Income
(2)
(21)
19
Audit Fees
35
35
0
Actuarial Fees
148
86
62
Total Administrative Expenses
1,494
1,047
447
Investment Expenses
Fund Manager Fees
5,571
5,187
384
Custody Fees
17
15
2
Performance Monitoring Fees
25
24
1
Consultancy Fees
260
68
192
Total Investment Fees
5,873
5,294
579
Total Fees
7,367
6,341
1,026
During 2013/14 the Fund produced an annual budget for 2014/15 to be included within the Pension
Fund Service Plan.
This identified three areas for budget monitoring:
Governance & Oversight
Investment Management Costs
Administration Costs
The Fund also appointed a new external consultant and an independent advisor. Increased
governance costs, training for new committee members and the costs of a strategic investment
review have all been incorporated into the budget for 2014/15.
26
Budget 2014/15
£000
£000
GOVERNANCE & OVERSIGHT
Employee Costs (Direct)
223
Internal Recharges
40
Expenses
20
Training & Conferences
7
Independent Advisor
63
Committee (Meetings & Training)
16
Membership Fees
18
Investment Consultancy Fees
253
Audit Fees
36
Actuarial Fees
64
Legal Fees
40
780
INVESTMENT MANGEMENT COSTS
Fund Manager Fees
6,300
Performance Management Fees
27
Custody Fees
17
6,344
ADMINISTRATION
Management
Employee Costs (Direct)
55
Training & Conferences
16
Internal Recharges
200
271
Operations
Employee Costs (Direct)
415
Expenses
7
422
Payroll
Employee Costs (Direct)
26
26
Communications
Employee Costs (Direct)
30
Printing & Postage
34
Other Expenses
2
66
Technical
Employee Costs (Direct)
122
Training
3
System Costs
180
305
Total Administration
1,090
Total Costs
8,214
27
Investment & Funding
Long Term Strategy
In determining the Investment Strategy for the Clwyd Pension Fund (the Fund), the overall
objective is to:
Aim for a funding level of 100%
Aim for long term stability in employers’ contribution rates
Achieve superior investment returns relative to the growth of liabilities
The investment policy of the Fund is intended to strike the appropriate balance between the policy
most suitable for long-term consistent performance and the funding objectives. A favorable
investment performance can play a valuable role in achieving adequate funding over the long term.
Summary of 2013/14
During 2013/14 the Fund implemented a significant strategic change of direction with the
appointment of Insight, following a lengthy and challenging process, to the Fund’s Long Term
Management of Risk mandate (Flight Path). Last year’s report noted that, in recent years, overall
funding levels had been affected as much by fluctuations in liability levels as by asset performance,
leading to a growing focus on liability-drivers such as inflation, interest rates and mortality. The
Fund had already introduced broad diversification and risk diversity within the asset structure to
minimise volatility. The “Flight Path” mandate applies similar principles to liabilities on the long-
term management of funding risk. The implementation of this strategy is a further differentiator
between the Fund and the majority of LGPS funds.
The first phase of the implementation was completed by 1st April 2014, as planned, and early
indications are that the mandate is performing as expected.
The investment arrangements of the Fund were carried out by twelve external managers covering
fourteen mandates all of which are pooled vehicles. In addition the Fund manages its Real Asset
and Alpha Seeking Alternative portfolios in house through thirty eight managers investing in
excess of ninety funds. These are shown at the end of this section of the Annual Report. During
2013/14, the Fund committed £16.6 million to two new managers, Bridges (two funds) and Dyal,
with an additional £63.2 million in 13 funds with existing managers.
During 2013/14 the market value of the Fund increased from approximately £1,181m to £1,214m.
The Fund achieved a positive investment return of +2.1% which was 1.6% behind the Fund’s
strategic benchmark of +3.7%.The funding level decreased from an estimated 72% at March 2013
to 68% at March 2014 due to the increase in the value of liabilities, which are mainly driven by the
low gilt yields, outpacing the gain in assets.
The majority of the Fund’s assets (58%) are invested in traditional asset classes such as equities
and bonds and these will be measured mainly against standard market benchmarks. The
remaining 42% of the Fund is invested in “alternative” strategies which are measured against Fund
specific benchmarks, generally absolute targeting returns in excess of 8%. In current market
conditions it would be difficult for many of our managers to achieve those returns.
Traditional assets, in total, produced a positive return of +2.0%, 0.6% ahead of their +1.4%
benchmark. Real assets and Alpha Seeking alternatives also produced positive returns in total,
albeit behind their customised benchmarks, increasing the overall Fund performance (excluding
GTAA) to +2.8% against a benchmark of +3.7%. The performance of the GTAA managers
however, detracted from overall performance, returning -4.2%, 7.2% behind the +3.2%
benchmark.
The Fund’s Real Asset portfolio invests 15% across property, infrastructure, timber, agriculture
and commodities. Whilst property produced a good return of +7.5%, this was behind the IPD UK
28
benchmark of +11.9%. Infrastructure produced +9.3% against the absolute benchmark of +8.0%
but Timber & Agriculture had a poor year returning -10.1%.
Commodity markets continued to underperform and the Fund returned -6.4%, marginally behind
the -6.0% commodity index.
The Fund’s Alpha Seeking Assets portfolio invests 15% across private equity (both direct and fund
of funds), opportunistic funds and hedge funds of funds. All asset classes within this allocation
produced positive returns producing a combined return of +6.3%, behind the strategic benchmark
of +10.6%. The private equity portfolio returned +6.3% but the opportunistic funds returned
+11.9%, in line with expectations at this early stage of the investment cycle. The hedge fund of
funds managers produced average returns of +4.5% against their absolute +8.0% benchmark. As
stated earlier, in a low interest rate environment, we would not expect these managers to achieve
such a high benchmark.
The Fund allocates 12% to global tactical asset allocation (GTAA) across three managers. The
three fund managers are all managing their assets very differently and have all produced varied
returns to contribute to the overall GTAA portfolio return of -4.2% compared to a combined
benchmark of +3.2%. This area continued to be disappointing.
In addition to the GTAA fund managers, Conditional Asset Allocation (CAA) allows officer
discretion and flexibility to make substantial changes in asset allocation between equities and fixed
income of up to +/-15%, if conditions require. There are quarterly meetings with the Fund’s tactical
asset allocation managers to discuss Fund positioning, as well as ad hoc telephone conversations
when market events appear to be moving quickly. In order to instruct any changes there has to be
a clear consensus from all the managers concerned that any event being witnessed, represent a
fundamental market change and not a short term correction. This strategy has not been
implemented to date, however, this flexibility remains an important part of the Fund’s investment
strategy.
The 12 month performance of the Fund’s assets is shown below.
20
Asset Performance 12 Months to March 2014
15
10
5
%
0
-5
-10
-15
l
e
s
n
r
k
t
a
t
t
ts
s
tyi
o
rty
re
e
SI
te
s
c
rd
b
ul
e
e
d
ti
e
ut
b
a
e
o
o
Rim
n
ti
l
o
rk
a
i
s
c
rk
c
p
c
m
ng
d
Ro
Cres
G
a
k
e
a
Pa
Bo
Equ
ol
rut
Ti
oi
o
c
u
Pyrf
d
l
e
Pro
s
m
a
-
e
/Ab
r M
M
a
at
Al
- SSAR
- L
n
e
g
b
ra
s
Bl
i
a
f
- Bl
h
ti
n
o
e
n
i
l
d
-
In
n
ds
AA
tra
p
rg
G
Priv
Com
s
e
Fre
Fu
un
AA
GT
n
Al
Fro
f
TAA
o
h
f F
g
Em
o
GT
G
d
o
Unc
Hil
n
nd
a
u
b
Return
Benchmark
F
Fu
ol
e
e
G
g
g
ed
Hed
H
29
The table below shows a summary of the annualised investment performance over the last 20
years compared with the Fund’s benchmark and corporate pension funds.
Average Local
Clwyd Pension
Clwyd Benchmark
Corporate Funds
Period (Years)
Authority
Fund (%) pa
(%) pa
(%) pa
(%) pa
1
2.1
3.7
6.4
3.7
3
4.7
5.7
7.5
7.8
10
6.5
7.3
7.8
7.7
15
4.8
5.0
5.5
5.2
20
6.8
6.9
7.2
7.1
The table below shows the historic funding, deficit and employer contribution rates. As a result of
the advice received by Clwyd County Council (pre Wales local government reorganisation in
1996), during the implementation of the Community Charge, the employers in the Fund received
a ‘contribution holiday’ that allowed the Fund to reduce to a 75% funding position in the late 1980s.
Funding Position
Recovery Period
Deficit
Average Employer
Actuarial Valuation
(%)
(years)
(£m)
Rate (%)
2001
77.0
15
158.4
19.5
2004
65.0
20
295.7
20.4
2007
75.0
17
294.0
21.6
2010
72.0
20
376.0
20.7
2013
68.0
18
552.0
27.8
Summary of the Longer Term
The market value of the Fund has increased from approximately £559m in 2004 to approximately
£1,214m in 2014. This is detailed in the Management and Financial Performance section of this
report.
The Fund’s investment strategy is more diversified than most LGPS funds. The aim is to reduce
volatility of returns, in line with the objective of stabilising employer contribution rates. Although
history suggests that in the long term equities should out-perform other asset classes, these
returns can be very volatile and the asset class can under-perform for many years. Although the
Fund still has a strategic allocation of 43% to equities and the associated equity risk, this is lower
than the average LGPS fund which allocate 63% to equities. Hence, in years where equities have
performed so well the investment performance of the Clwyd Fund will lag most of its peers in the
LGPS.
The following table documents the changes in investment strategy since 2001. As can be seen
the asset allocation is very different from that of the average local government pension fund. The
Fund has been particularly active and very early in its commitments to alternative assets through
a broad range of specialist managers. The current investment strategy remains as 2011 below.
The Fund will be carrying out another review of its investment strategy during 2014 with any
changes to be implemented in 2015.
30
2001
2004
2007
2011
LGPS
Investments
%
%
%
%
Average
Equities
Global Unconstrained
-
-
5.0
5.0
Global High Alpha/ Absolute
-
-
-
5.0
UK Active (traditional)
35.0
29.0
15.0
-
UK Active (portable alpha)
10.0
10.0
12.0
-
US Active
7.0
8.0
5.0
-
Europe (ex UK) Active
11.0
9.0
6.0
-
Japan Active
4.0
4.0
4.0
-
Far East (ex UK) Active
2.5
3.0
4.0
7.0
Emerging Markets Active
2.5
3.0
4.0
7.0
Developed Passive
-
-
-
19.0
72.0
66.0
55.0
43.0
63.0
Fixed Interest
Traditional Bonds
10.0
9.5
-
-
High Yield/ Emerging
1.5
2.0
-
-
Unconstrained
-
-
13.0
15.0
Cash/ Other
2.5
0.5
-
-
14.0
12.0
13.0
15.0
19.0
Alternative Investments
Property
5.0
7.0
6.5
7.0
Infrastructure
0.5
5.0
1.5
2.0
Timber/ Alternatives
-
-
1.5
2.0
Commodities
-
-
2.0
4.0
Private Equity
4.5
4.5
6.5
8.0
Hedge Fund of Funds
4.0
4.0
5.0
5.0
Currency Fund
-
4.0
4.0
-
Free Allocation
-
-
-
2.0
Tactical Asset Allocation (TAA)
-
2.0
5.0
12.0
14.0
22.0
32.0
42.0
18.0
31
The 2013/14 fixed strategic benchmarks for each of the managers and the mandates within their
remit are shown below along with their actual allocation at year end. As stated in the Statement of
Investment Principles, having agreed the fixed benchmark there is a need to keep the position
under review. Re-balancing of the Fund to keep it in line with the benchmark will incur costs and
will, therefore, need to be considered in light of the benefits to be achieved and the costs
associated with turnover. Re-balancing will only take place quarterly when an asset class has
moved by more than the ranges indicated in the table below except in exceptional economic or
stock market circumstances. Although there is no long term strategic allocation to cash there is a
need to include a tactical range to accommodate these circumstances where it is not considered
appropriate to re-balance the portfolio and where investment commitments have been made.
Weight
Allocation Tactical
Manager
Mandate
%
31/03/14
Ranges
Liability Driven Investment
Insight
LDI
19
18.8
+/- 1%
Equities Alpha Seeking
Aberdeen Asset Management
Pac Rim – High Alpha
7
6.3
+/- 1%
Aberdeen Asset Management
Frontier Markets
1
0.7
Wellington Management
Emerging Markets Core
6
6.1
+/- 1%
International Ltd
Investec Asset Management
Global – High Alpha
5
5.9
+/- 1%
Duet Asset Management Ltd
Other Global – High Alpha
5
4.1
+/- 1%
Fixed Interest
Stone Harbour Investment
Unconstrained
15
14.4
+/- 2%
Funds
Cash
0
2.6
+/- 5%
Real Assets
15
15
+/- 3%
Various
Property
7
8.0
Various
Infrastructure
2
2.4
Various
Timber/ Agriculture
2
1.9
Wellington Management
Commodities
4
2.7
International Ltd
Alpha Seeking Alternatives
15
16.5
+/- 3%
Various
Private Equity
8
11.5
Liongate
Hedge Fund of Funds
2.5
1.9
SSARIS
Hedge Fund of Funds
2.5
2.1
Various
Opportunistic
2
1.0
Tactical Asset Allocation (TAA)
Blackrock
Global TAA
6
4.2
+/- 1%
BlueCrest Capital Management
Macro Fund of Funds
3
2.7
+/- 1%
Pyrford International Ltd
Dynamic TAA
3
2.7
+/- 1%
32
Real Assets Portfolio
Property
Open Ended Holdings
Schroders
Hermes
LAMIT
Legal and General
BlackRock
Closed Ended Holdings
Aberdeen Property Select (Asia Pacific – 2 funds)
BlackRock US Residential Opportunity Fund
Bridges Property
Darwin Leisure Property Fund
InfraRed Active Property (2 funds)
Igloo Regeneration Fund
Morgan Stanley Global Real Estate (2 funds)
Partners Group Global Real Estate (2 funds)
Franklin Templeton (2 funds –European and Asia Pacific)
Schroders – Columbus UK Real Estate (2 funds)
Threadneedle
Timber
RMK Timberland (3 funds)
Stafford International Timberland (3 funds)
Agriculture
Insight Global Farmland
GMO
Infrastructure
Arcus European Infrastructure
Henderson PFI
InfraRed (4 funds including Environmental)
Innisfree
Morgan Stanley – Global (2 funds)
Impax New Energy Fund
33
Alpha Seeking Alternatives Portfolio
Private Equity
Direct
Apax (5 funds)
Arle (3 funds)
Bridges Ventures
Carlyle (2 funds)
Charterhouse Capital (3 funds)
Crossroads (2 funds)
ECI Ventures (3 funds)
Environmental Technologies Fund (2 funds)
Ludgate Environmental Fund
Granville Baird (3 funds)
August Equity (2 funds)
Parallel Ventures (3 funds)
Partners Group Direct
Fund of Funds
Access Capital (4 funds)
Harbour Vest (7 funds including Cleantech Fund)
Hermes Environmental Innovation
Partners Group (10 funds)
Capital Dynamics (11 funds)
Opportunistic
Carlyle (1 fund)
Capital Dynamics (1 fund)
Marine Capital Eclipse Shipping (2 funds)
Dyal II
*
Italic – new fund during 2013/14
*
Bold italic – new manager and fund 2013/14
34
Sustainability Policy
Aim and Definition
The aim of Corporate Governance is to align the interests of individuals, corporations and society.
Corporate Social Responsibility is operating a business in a manner that meets or exceeds the
ethical, legal, commercial and public expectations that society has for businesses.
The Clwyd Pension Fund Policy
The Clwyd Pension Fund has always included a section in the Statement of Investment Principles
(SIP) on environmental, social and ethical considerations and corporate governance. However, in
light of the publication of the United Nations Principles on Responsible Investment (UNPRI) and
the Financial Reporting Council’s new Stewardship Code, the Fund produced a Sustainability
Policy and a Stewardship Code compliance statement as part of the SIP which can be found within
the regulatory documents section of this Annual Report. The format of the Policy follows that of
the UNPRI but as recognised in the Policy, given the pooled nature of the investments, it would
be difficult to become a formal signatory of the UNPRI.
Compared with the previous sections in the SIP on this area, this Policy makes a clear commitment
that the Fund will be an active supporter of UN principles. The Policy is specific in the actions the
Fund will take in the 6 principle areas:
Investment Strategy
Company Engagement & Voting
Investment Management & Monitoring of Performance
Investment Management Selection and Contracts
Collaboration
Reporting and Disclosure
Members receive quarterly reports which update Members on the progress and application of
the Fund’s Sustainability Policy.
Implementation of the Policy
The Sustainability Policy included within the SIP identifies, in detail, the approach the Fund will
adopt within each of the areas specified above and the Stewardship Code identifies areas where
further work is required to ensure full compliance. The Fund sends all its fund managers copies of
the Sustainability Policy, protocol, questionnaire and guidance notes and asks them to report on
their compliance.
Responses from managers were analysed and results were positive for many of the managers
within the Fund. As expected, the Fund’s four main managers and smaller equity managers, who
account for 61% of the Fund’s assets all scored very highly whilst the Hedge Fund based
managers did not provide enough information to achieve adequate scores. The managers
concerned account for 14% of the Fund and individual issues raised are discussed with those
managers during their update meetings
The Real Assets and Private Equity portfolio is currently 23% of the Fund and responses were
mixed across the managers. The majority of real asset managers scored well across the
categories as we expected. Responses were more mixed amongst the private equity managers
with some providing much more detailed information resulting in higher scores than others. There
were only a few low scoring managers and these are to be addressed at subsequent meetings.
The Fund is also a member of two bodies, the Local Authority Pension Fund Forum (LAPFF) and
the National Association of Pension Funds (NAPF). The LAPFF has 60 LGPS members with
combined assets of over £125bn. In line with the Fund’s policy LAPFF believe that by actively
encouraging companies to comply with best practice shareholder value is improved over the
medium and long term. The LAPFF work programme is on-going on projects on overseas
35
employment standards, company workforce practices, climate change and greenhouse gas
emissions. Further details can be found on the LAPFF web site www.lapfforum.org.
The Fund is invested in pooled vehicles, therefore does not own individual shares. However, the
Fund’s investment managers report on how they voted the shares within the vehicle. In particular,
if corporate governance concerns are raised by LAPFF or NAPF these are reported to the fund
managers and an explanation is received from the managers on how they voted and the
engagement undertaken with the managers of the company. Details of the voting activities of the
managers have been reported to the Pension Fund Committee each quarter and a summary of
the activity from April 2013 to March 2014 is shown in the following table.
Manager
AGM’s
Proposals
Votes
Votes
Votes
Not Voted
For
Against
Abstained
Aberdeen
92
1,042
967
40
21
14
Investec
65
809
561
69
112
67
Pyrford
62
792
727
64
1
Wellington
456
4,370
3,627
431
97
215
As can be seen below, as part of the Fund’s Property & Private Equity allocation, the Fund invests
in environmental and sustainable projects, including Agriculture, Timber, Regeneration, and
Environmental Technology Funds. During 2013/14 three new investments were made within this
asset allocation. On-going, the Fund will continue to review the approach taken and welcomes any
comments Member Bodies have on the policy, its implementation, and any ideas that might be
adopted by LAPFF for future projects.
Year
Investment
Commitment
2006
Igloo Regeneration Fund
£2m
2006
Ludgate Environmental Fund
£1m
2007
Stafford Timberland IV
$8m
2007
RMK Timberland
$8m
2008
Environmental Technologies Fund
£3.7m
2008
Ludgate Environmental Fund (additional)
£1m
2008
Stafford Timberland V
€2.6m
2008
RMK Timberland Resources Fund
€2.4m
2008
HSBC Environmental Infrastructure
€5m
2008
Harbour Vest Cleantech Fund
$7.5m
2009
Impax New Energy
€5m
2010
Hermes Environmental Innovation Fund I
£5m
2010
Ludgate Environmental Fund (additional)
£2m
2011
Stafford Timberland VI
€3m
2011
RMK Timberland
€2.4m
2012
Capital Dynamics US Solar Fund
$8m
2012
Environmental Technology Fund II
£5m
2013
Insight Global Farmland
$8m
2013
GMO Farmland Optimisation Fund
$8m
2013
Ludgate Environmental Fund II
£6m
2013
Threadneedle Low Carbon Workplace Fund
£5m
2013
Bridges Ventures Fund III
£5m
2013
Harbour Vest Cleantech III
$7.5m
2014
Bridges Property Alternatives Fund II
£5m
36
Pensions Administration Update 2013/14
Introduction
The Fund's day to day administration service is provided by the Pension Administration Section
which consists of a total of 20 Full Time Equivalent (FTEs) members of staff including a Pension
Administration Manager. It is split between an Operational Team and a Technical Team, and is
separate from the Accounting and Investment Team.
The Operational Team of 13 FTEs delivers a pensions service for approximately 35,000 scheme
members and 28 employing bodies. This includes the calculation of various benefits, transfers in
and out, refunds and maintenance of individual records. The Technical Team of 6 FTEs
implements and maintains the pension software systems, reconciles employer records, provides
a communication service for members and employers and a pensioner payroll service for 10,000
pensioners and dependents.
The LGPS
Following the review of the Public Sector Pension Schemes, on 1 April 2014 the Government
introduced a new scheme for Local Government.
The Local Government Pension Scheme 2014 is a Career Average Revalued Earnings Pension
Scheme. This means the pension accrued, is based on a proportion (1/49) of the pay earned each
year. Before each year is added to the pot, the pot is adjusted by treasury orders (which follow
inflation).
However, all active members who joined the scheme prior to 1 April 2014, have been given
protection for their pre April 2014 membership. The protection means that all membership prior to
1 April 2014 will remain in the final salary scheme and the pension will be based on the
pensionable pay earned in the last 365 days of service (under the 2008 scheme definitions).
This has led to Clwyd Pension Fund, having to administer benefits which often span across several
sets of regulations. Membership is treated differently under each set of regulations. Benefits prior
to 1 April 2008 are calculated under the 1997 scheme regulations. Benefits between 1 April 2008
and 31 March 2014 are calculated under the 2008 scheme regulations and the benefits accrued
after 1 April 2014 are calculated under the 2014 scheme regulations.
Each set of regulations require some interpretation but attempts to guide each fund through the
administration of benefits. Pension Officers/Managers meet regularly to discuss and confirm the
implications of each change and to consider new procedural and literature requirements to ensure
continuity.
Auto Enrolment
In April 2013 the first of the Clwyd Pension Fund Employers reached their staging date. All eligible
job holders have now been enrolled into the Scheme, with the exception of the category of workers
who were eligible on the staging date and have previously opted out. These employees will be
reviewed in October 2017. Individual letters have been issued to all employees confirming how
auto enrolment affects them personally.
In line with the Auto Enrolment guidelines, the Clwyd Pension Fund now record the details of opt
outs as informed by each employer.
The 2013/14 new starter figures confirm the initial impact of Auto Enrolment on the Clwyd Pension
Fund. New starters have doubled from 1,000 to 2.000 from March 2013 to March 2014.
37
Communications
During the 2013/14 financial year, the Clwyd Pension Fund has published and distributed the
following communications:-
Distributed issue 10 of Clwyd Catch Up – a newsletter for our pensioner members which is
issued along with their pensions increase notification.
Circulated issue 18 of Penpal – a newsletter that is sent to our active members informing
them of changes and updates to the Scheme.
Distributed benefit statements to both active and deferred Local Government Pension
Scheme members.
Distributed an AVC/ARCs introduction letter for members aged from 45 to 59 during May
2013.
Between April 2013 and March 2014 the following have taken place:
i.
28 days of drop-in surgeries for scheme members at their workplace
ii.
6 pre-retirement seminars
The welcome pack, which includes “The Employees Guide to the Local Government Pension
Scheme”, was sent out to new Fund members up to 31 March 2014. This booklet has now been
replaced with ‘a Short Scheme Guide’ which includes information on the new scheme.
The literature entitled “Topping up your Benefits” has recently been reviewed and updated to take
into account the recent regulation changes.
2013/14 Website updates:
o Link to the LGPS2014 website
o Employee pension contribution table
o Updated scheme literature
The Website has been invaluable in giving both member and Fund Employers access to pension
forms, reducing paperwork and postage costs. This is also a useful tool to communicate LGPS
matters to our members, pensioners, employers, and also anyone interested in our Governance
and Investments. The website continues to be maintained and updated when required.
For further information on Clwyd Pension Fund communications, please refer to our
Communication Policy Statement following in this Annual Report.
Developing the Service
The Clwyd Pension Fund is dedicated to improving its service delivery to employers, scheme
members and pensioners by:
Reviewing its service level agreements with employers on an annual basis.
Maintaining an effective business continuity plan
Formulating an Administration Strategy
Attending manager meetings to discuss LGPS administration and also current regulation
issues
Attending LGPS training courses to ensure staff skills and LGPS knowledge are up-to-date
Introducing software, provided by a third party, to assist employers in addressing their Auto
Enrolment obligations, in respect of record keeping and reporting on employee data. In
addition it is a filter for the flow of information from a Scheme Employer to the Administering
Authority.
Scanning of all documents and post to maintain a paperless office
Pensions Administration and Pensions Payroll working on the same merged computer
package – Altair.
38
In 2013/14 progress continued to be made with the new operational model for the Fund. The staff
dealing with the administration of the administration, are split into teams. Each team looks after
set employers within the scheme, giving a direct point of contact and reinforcing the
Fund/Employer relationship. There will be on-going work with our larger employers on data quality
and correcting a backlog of historic records during the year in preparation for the Pension
Regulator’s new Code of Practice.
A main point of focus has been the major undertaking of staff training. This has involved both the
progression of current staff and the introduction of new members of staff. When operating the new
structure, expanding staff knowledge has proved vital. The section will also continue to benefit
considerably from this in the future.
In addition, the Clwyd Pension Fund Pensioner Payroll, were pleased to proceed with an early ‘Go
Live’ date for the H. M. Revenue & Customs’ Real Time Information (RTI).
The challenges of 2013/14 were significant with the Fund Valuation, the early distribution of the
Annual Benefit Statements and the issuing of Life Certificates to all Fund pensioners. The Clwyd
Pension Fund Staff have pulled together to achieve goals simultaneously whilst continuing to
improve key knowledge levels and development.
Performance monitoring will ensue, enabling transparent and meaningful statistics to all
stakeholders on the performance of the administration service and employers.
Administrative Management Performance
This section of the report focuses on key administration performance indicators, efficiency and
staffing indicators, together with a five year analysis of membership data. The Fund participates
in the CIPFA Pensions Administration Benchmarking Club.
Key administration benchmarks
Indicator
The Fund
Benchmark
Highest
Average
Net cost per member
£25.23
£20.75 More than £40
Net cost per member including investment
£169.33
n/a
n/a
management expenses #1
Net cost per member excluding temporary
£22.71
£20.75 More than £40
staff #2
15,879
29,480
Active members
n/a
41%
37%
22,785
50,880
All other members
n/a
59%
63%
#1 this is a new indicator that is not included in the CIPFA Benchmarking Club and thus
comparators are not available. This may change in 2014/15 due to the Fund undertaking a review
of its investment strategy together with the introduction of specific national guidance on the
identification and recording of manager fees.
#2 Temporary staff have been employed to address historic backlogs that has increased the gross
cost per member as shown in the benchmarking club.
39
Cases completed 2013/14:
Case Type
Cases
New Starters
2,037
Address changes
1,989
Defers
1,583
Retirements (all types)
769
Estimates (all types)
464
Deaths (deferred, active and pensioners)
394
Transfers In
142
Transfers Out
53
Staff Turnover 2013/14
Description
Number
Total permanent Staff as at 31/03/2014
20
Permanent staff leaving up to 31/03/2014
0
Permanent staff joining up to 31/03/2014
0
Ratio of Pensions Staff to LGPS Members 2013/14:
Although there are 20 full time equivalent members of staff (not including temporary staff), only
13 full time equivalent staff deal with administration. The remaining 6 staff deal with I.T., pension
payroll and communications.
As at 31/03/2014, there were 34,807 members of the Clwyd Pension Fund. This means that
there are 2,677 members per Pension’s staff member.
Member Trends: 5 Years
Period from – to
Contributors
Deferred
Pensioners
Dependant
Members
Pensioners
01/04/2009 – 31/03/2010
15,073
5,969
7,395
1,425
01/04/2010 – 31/03/2011
14,960
6,910
7,641
1,450
01/04/2011 – 31/03/2012
14,939
7,008
7,662
1,443
01/04/2012 – 31/03/2013
14,920
7,539
8,386
1,488
01/04/2013 – 31/03/2014
16,133
8,307
8,805
1,562
Pensioners who were awarded enhanced retirement benefits:
Period from – to
No. of Enhanced Benefits
01/04/2006 – 31/03/2007
85 Members
01/04/2007 – 31/03/2008
33 Members
01/04/2008 – 31/03/2009
23 Members
01/04/2009 – 31/03/2010
27 Members (tier 1 & 2 ill health only)
01/04/2010 – 31/03/2011
21 Members (tier 1 & 2 ill health only)
01/04/2011 – 31/03/2012
22 Members (tier 1 & 2 ill health only)
01/04/2012 – 31/03/2013
15 Members (tier 1 & 2 ill health only)
01/04/2013 – 31/03/2014
34 Members
40
Age profile of members 2013/14:
Age Trends
3000
2500
rs
e 2000
b
m
1500
Clwyd Pension Fund
Me
PS
G 1000
L
500
0
16 - 20 21 - 25 26 - 30 31 - 35 36 - 40 41 - 45 46 - 50 51 - 55 56 - 60 61 - 65 66 - 70 71 - 75
Ages
Internal Dispute Resolution Procedure 2013/14:
1st Stage Cases Submitted
Cases Won
Cases Lost
2
0
0
2nd Stage Cases Submitted
Cases Won
Cases Lost
0
0
0
The cases submitted during 2013/14 (as above) have since been finalised, with one case being
upheld and one case being rejected.
Due to the open door policy within the department, the majority of cases where dissatisfaction is
raised, are resolved by the Pensions Administration Manager and the Principal Pensions Officers.
An appeal may be against either the former employer or the administering authority (Flintshire
CC). This depends on what the appeal is against. Some examples are given below:
Employer Decisions
- termination of employment on medical grounds
- calculation of final year’s pay for benefits
- what counts as pensionable pay of various pay allowances
Administering Authority Decisions
- counting of service in present/previous employments
- award of spouse/children benefits
- death grant nominations
Written appeal applications must be made within six months. The formal right of appeal is in two
stages. If you are dissatisfied with the stage one decision you may go to the second stage which
will be the administering authority, Flintshire CC. The Chief Executive has appointed a suitably
qualified officer to hear stage two appeals.
National Fraud Initiative (NFI)
Clwyd Pension Fund participates in the NFI every other year. The NFI is a data matching exercise
designed to detect and prevent fraud and overpayments across England and Wales. As a public
body, we are required by law to protect the public funds we administer.
41
The Auditor General is responsible for carrying out data matching exercises under his powers
under the Public Audit (Wales) Act 2004.
As the use of data by the Auditor General for Wales in a data matching exercise is carried out with
statutory authority (Part 3A of the Public Audit (Wales) Act 2004), it does not require the consent
of the individuals concerned under the Data Protection Act 1998.
In addition to this, Clwyd Pension Fund uses a mortality screening service provided by Atmos,
which informs us of deceased members.
Analysis of Pension Overpayments and Write Offs
The Fund has a policy in which it does not seek to recover any overpayments of pensioner payroll
payments which are under £100. Details of those are shown below. Every effort is made to recover
any payroll overpayments above £100. In some circumstances these may be written off with
agreement from the Head of Finance (now Chief Officer (People and Resources)).
2013/14
2012/13
2011/12
2010/11
2009/10
£
£
£
£
£
Amounts under £100
5,975
3,443
4,954
3,320
3,062
Number of cases
129
97
99
75
76
Overpayments Recovered
19,518
39,625
24,214
26,836
31,807
Number of cases
57
51
34
46
50
Overpayments Written Off
402
0
6,146
200
1,676
Number of cases
2
0
5
4
5
Participating Employers of the Fund as at 31st March 2014
There have been no additional bodies admitted to the Fund during 2013/14 and therefore no bonds
or any other secured funding arrangements have been entered into.
The results of the March 2013 Actuarial Valuation led to new employer contributions and funding
plans, which were discussed and agreed with individual employers.
The Pensions Regulator allows the Fund the option to levy interest on overdue contributions during
the financial year. During the year the Fund monitored timeliness of contributions and liaised with
employers to overcome any problems they had encountered. The analysis below shows the
number of late contributions made to the Fund, along with the amounts and days concerned. The
Fund did not exercise its option to levy interest against any of the employers during the year as
the amounts involved amounted to only 0.118% of total contributions received, £0.079m compared
to £67m.
Employer
Late Occasions
Contributions (£)
A
8
11,374.54
B
8
18,925.49
C
1
1,726.07
D
1
5,804.85
E
1
36,253.25
F
3
3,547.62
G
1
1,363.93
42
The Fund had 27 bodies who contributed to the Fund during 2013/14, 20 scheduled and 7
admitted. Contributions are paid over to the Fund by the 19th of the following month to the month
that the contributions relate to. An analysis of contributions received during 2013/14 is shown
below.
Scheduled
Employer
Employee
Bodies
Contribution (£)
Contribution (£)
Flintshire County Council
18,321,005.97
5,052,083.47
Wrexham County Borough Council
16,266,595.87
4,207,338.29
Denbighshire County Council
12,844,609.11
3,722,060.76
Coleg Cambria
1,787,604.32
691,719.23
Glyndwr Univesity
1,469,819.00
533,387.07
North Wales Fire Service
851,882.49
253,079.28
Rhyl Town Council
36,883.61
8,534.70
North Wales Valuation Tribunal
38,369.20
8,480.57
Hawarden Town Council
30,298.01
9,405.32
Connah’s Quay Town Council
19,960.66
5,620.48
Prestatyn Town Council
18,570.80
8,762.03
Caia Park Town Council
14,594.74
4,854.49
Buckley Town Council
12,944.26
4,748.32
Coedpoeth Town Council
13,712.80
2,928.62
Mold Town Council
10,430.47
3,694.22
Rhos Town Council
9,373.99
2,889.38
Offa Town Council
3,874.42
1,297.06
Shotton Town Council
4,523.04
1,664.56
Argoed Town Council
3,125.22
1,216.41
Llanasa Town Council
221.00
0.00
Admitted
Employer
Employee
Bodies
Contribution (£)
Contribution (£)
Careers Wales
337,464.11
115,158.42
Clwyd Leisure
94,627.15
27,675.99
Cartref y Dyffryn Ceiriog
50,116.65
3,585.52
Bodelwyddan Castle Trust
27,634.16
11,357.39
Compass Group UK
7,499.17
2,742.45
Denbighshire Voluntary Services
7,565.27
2,333.81
Grosvenor Facilities Management
5,564.44
1,739.28
Administrative Responsibilities:
The Clwyd Pension Fund is solely responsible for the administration of pensioner payroll. The
administration for scheme members is mainly the responsibility of the Clwyd Pension Fund
although the Employers must adhere to certain standards set out in the Service Level Agreements.
For example, the Employers must supply the Clwyd Pension Fund with documents in a timely
manner in order for benefits to be calculated as soon as possible.
Although the Clwyd Pension Fund has the power to seek compensation from Employers in respect
of any breaches of such standards, the Clwyd Pension Fund has not used this power.
43
Other Information
The following information is provided to assist in the production of the scheme annual report
compiled by the LGPS scheme advisory board.
Analysis of Employers of the Fund
The table below shows a summary of the employers in the fund analysed by scheduled bodies
and admitted bodies which are active and ceased.
Active
Ceased
Total
Scheduled body
20
8
28
Admitted body
7
4
11
Total
27
12
39
Analysis of Fund Assets
The table below provides an analysis of the Fund’s assets as at 31 March 2014.
UK
Non –UK
Global
Total
£000
£000
£000
£000
Equities
0
159,621
121,722
281,343
Alternatives
95,795
206,319
195,964
498,078
Bonds & LDI
227,459
0
174,002
401,461
Property (Direct)
0
0
0
0
Cash
31,928
0
0
31,928
Total
355,182
365,940
491,688
1,212,810
The alternatives portfolio comprises pooled investments in the following asset classes: GTAA,
Hedge Fund of Funds, Commodities, Property, Private Equity & Opportunistic, Infrastructure and
Timber.
Analysis of Investment Income
The table below provides an analysis of the Fund’s investment income accrued as at 31 March
2014. The Fund invests in pooled vehicles for equities and bonds hence, investment income is
reinvested within the vehicle and not paid out to the Fund.
UK
Non –UK
Global
Total
£000
£000
£000
£000
Equities
0
8
0
8
Alternatives
2,283
292
0
2,575
Bonds & LDI
0
0
0
0
Property (Direct)
0
0
0
0
Cash
138
0
0
138
Total
2,421
300
0
2,721
44
CLWYD PENSION FUND ACCOUNTS
for the year ended 31st March 2014
THE MANAGEMENT AND MEMBERSHIP OF THE CLWYD PENSION FUND
The Clwyd Pension Fund is administered by Flintshire County Council on a lead authority basis. The administration
and investment strategy of the Fund is considered and agreed each quarter by the Clwyd Pension Fund Panel,
consisting of five elected Members, the Head of Finance, the Clwyd Pension Fund Manager, a consultant to the
Fund, and a scheme member observer. The Fund's investment management arrangements were implemented by
twelve investment managers during 2013/14.
The Clwyd Pension Fund is a statutory Local Government Pension Scheme (LGPS), set up to provide death and
retirement benefits for local government employees, other than teachers, police and firefighters in North East
Wales. In addition, other qualifying bodies which provide similar services to that of local authorities have been
admitted to membership of the LGPS and hence the Fund.
The Clwyd Pension Fund operates a defined benefit scheme whereby retirement benefits are funded by contributions
and investment earnings. Contributions are made by active members in accordance with the LGPS (Benefits,
Membership and Contributions) Regulations 2007 and range from 5.5% to 7.5% of pensionable pay for the financial
year ending 31st March 2014. Employee contributions are added to employer contributions which are set based on
triennial actuarial funding valuations. The benefits of the scheme are prescribed nationally by Regulations made
under the Superannuation Act 1972. The last valuation was at 31st March 2013, the findings of which become
ef ective on 1st April 2014. The valuation showed that the funding level decreased from the previous valuation on 31st
March 2010 from 72% to 68%. The employers’ contribution rates are structured to achieve a gradual return to
100% funding level over an 18 year period. This implies an average employer contribution rate of 13.8% and a total
payment of £32.6m per annum for deficit contributions, increasing at 4.1% per annum.
Up to the 1st April 2014 the fund was governed by the Superannuation Act 1972 and administered in accordance
with the following secondary legislation:
The LGPS (Benefits , Membership and Contributions) Regulations 2007 (as amended)
The LGPS (Administration ) Regulations 2008 (as amended)
The LGPS (Management and Investment of Funds) Regulations 2009 (as amended)
Membership of the LGPS is voluntary and organisations participating in the Clwyd Pension Fund include:
Scheduled bodies, that are local authorities and similar bodies whose staff are automatically entitled to be
members of the fund.
Admitted bodies that are organisations which participate in the fund under an admission agreement between
the fund and the relevant organisation. Admit ed bodies include voluntary, charitable and similar contractors
undertaking a local authority function following outsourcing to the private sector.
The membership of the Fund as at 31st March 2014 and 2013 is shown below:-
2014
2013
No.
No.
Contributors
16,133
14,920
Pensioners :
Ex employees
8,805
8,386
Widows/dependants
1,562
1,488
Preserved benefits
8,307
7,539
Total membership
34,807
32,333
45
The scheduled bodies which contributed to the Fund during 2013/14 are:-
Unitary Authorities:
Flintshire, Denbighshire, Wrexham.
Educational Organisations:
Coleg Cambria, Glyndwr University.
Town and Community
Argoed, Coedpoeth, Connah's Quay, Hawarden, Rhosllanerchrugog, Buckley,
Councils:
Prestatyn, Offa, Mold, Caia Park, Rhyl, Shot on, Llanasa.
Other:
North Wales Fire Service, North Wales Valuation Tribunal,
The admitted bodies contributing to the Fund are:
Other: Careers Wales, Cartref y Dyffryn Ceiriog, Compass Group UK, Denbighshire Voluntary Services, Clwyd
Leisure, Bodelwyddan Castle Trust, Grosvenor Facilities Management.
The increase in contributors from 1st April 2013 is mostly attributable to the impact of auto enrolment within the
three unitary authorities.
The content of the accounts comply with accounting standards, but further information is available in the Clwyd
Pension Fund Annual Report and Statement of Investment Principles which are presented to the Annual Joint
Consultative Meeting for employers and member representatives that is held annually each November.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The Statement of Accounts summarises the Fund’s transactions for the 2013/14 financial year and its position at
year end as at 31st March 2014. The accounts have been prepared in accordance with the Code of Practice on
Local Authority Accounting in the United Kingdom 2013/14 which is based upon International Financial Reporting
Standards (IFRS), as amended for the UK public sector.
The accounts summarise the transactions of the Fund and report on the net assets available to pay pension
benefits. The accounts do not take account of obligations to pay pensions and benefits which fall due after the end of
the financial year. The actuarial present value of promised retirement benefits, valued on an International
Accounting Standard (IAS) 19 basis is, disclosed at Note 15 of these accounts.
In summary, accounting policies adopted are detailed as follows:
Contributions, benefits and investment income due are included on an accruals basis.
Investments are included in the accounts at market value, usually bid price.
Debtors and creditors are raised for all amounts outstanding at 31st March.
Individual Transfer values received and paid out have been accounted for on a cash basis.
Bulk Transfer values paid out are accounted for on an accruals basis.
The financial statements do not take account of liabilities to pay pensions and other benefits after the reported
accounting period.
Investment management expenses are accounted for on an accruals basis and include the fees paid and due
to the fund managers and custodian, actuarial, performance measurement and investment consultant fees.
Administration expenses are accounted for on an accruals basis. All Flintshire County Council staff costs are
charged direct to the Fund and management, accommodation and other support service costs are apportioned
to the Fund in accordance with Council policy.
Acquisition costs of investments include all direct transaction costs and sales receipts are net of all direct
transaction costs.
46
2014
2013
Note
£000
£000
£000
£000
£000
£000
Contributions and Benefits
Contributions receivable :
From employers
1
52,289
52,294
From employees or members
1
14,688
14,381
66,977
66,675
Transfers in
3,801
4,735
Other income
1,918
1,411
5,719
6,146
72,696
72,821
Benefits payable :
Pensions
1
46,885
44,717
Lump sums (retirement)
1
12,331
10,859
Lump sums (death grants)
1
1,921
1,401
61,137
56,977
Payments to and on account of leavers :
Refunds of contributions
26
8
Transfers out (individual)
2,919
1,544
Transfers out (bulk)
242
0
Other
77
52
Administrative and other expenses bourne by the scheme
2
1,494
1,047
4,758
2,651
65,895
59,628
NET ADDITIONS (WITHDRAWALS)
6,801
13,193
Returns on Investments
Investment income
4
2,721
2,397
Change in market value of investments (Realised
4
28,686
110,113
and Unrealised)
Investment management expenses
2
(5,873)
(5,294)
NET RETURNS ON INVESTMENT
25,534
107,216
NET (DECREASE)/INCREASE IN THE FUND
32,335
120,409
OPENING NET ASSETS OF THE SCHEME
1,181,232
1,060,823
CLOSING NET ASSETS OF THE SCHEME
1,213,567
1,181,232
47
2014
2013
Note
£000
£000
Net Assets Statement Investment Assets :
5
Managed fixed interest fund
174,002
175,148
Managed UK equity funds
0
122,222
Managed overseas equity funds
281,343
391,597
Managed multi strategy funds
115,487
120,380
Property funds
97,780
82,260
Infrastructure funds
29,636
23,907
Timberland / Agricultural funds
22,382
20,511
Commodity funds
32,084
34,588
Private equity funds
139,799
138,137
Hedge fund of funds
48,393
47,070
Liability Driven Investment
227,459
0
Opportunistic Funds
12,517
5,910
Other investment assets
8
0
874
Cash
7
31,928
17,331
Investment Liabilities:
Other investment liabilities
8
0
0
Current Assets:
Due within 1 year
9
4,745
3,845
Current liabilities
9
(3,988)
(2,548)
NET ASSETS AT 31st MARCH
1,213,567
1,181,232
48
1. ANALYSIS OF CONTRIBUTIONS RECEIVABLE/BENEFITS PAYABLE
Contributions represent those amounts receivable from various employing authorities in respect of their own
contributions and those of eligible pensionable employees. The total contributions received during 2013/14 amounted
to £52.289m (£52.294m in 2012/13) from employers and £14.688m (£14.381m in 2012/13) from employees.
The employers total comprised an amount of £27.393m (£26.717m in 2012/13) relating to the common contribution
rate average of 11.7% paid by all employers and £24.896m (£25.577m in 2012/13) relating to the individual
adjusted rates and additional contributions paid in respect of deficit funding for individual employers.
Benefits payable and refunds of contributions have been brought into the accounts on the basis of all valid claims
approved during the year.
Analysis of contributions received and benefits payable is shown below:
Benefits
Contributions
Payable
Receivable
Scheduled Bodies
£000
£000
Flintshire County Council
20,783
23,373
Wrexham County Borough Council
19,906
20,474
Denbighshire County Council
13,942
16,567
Fund apportionment with :
Gwynedd and Powys County Councils
2,371
0
Educational Organisations
2,616
4,482
Town and Community Councils
128
234
Others - scheduled bodies
583
1,152
Others - admitted bodies
808
695
61,137
66,977
The above merely reflects the figures in the accounts. The circumstances pertaining to each of the bodies listed is
different for a variety of reasons (contribution and pensioner profiles, employees' contribution rates, early retirement
experience etc.) and direct comparisons, therefore, are largely meaningless.
2. ADMINISTRATION AND INVESTMENT MANAGEMENT EXPENSES
The regulations permit the Council to charge the cost of administering the scheme to the Fund. The external
managers' fees have been accounted for on the basis contained within their management agreement.
49
The cost of Pensions Administration and investment management is shown below:-
2014
2013
£000
£000
Administration Expenses
Employee Costs
781
630
Support Services
242
161
Supplies and Services
288
135
Audit Fees
35
35
Actuarial Fees
148
86
1,494
1,047
Investment Expenses Net Fund Management Fees
5,571
5,187
Custody Fees
17
15
Performance Monitoring Fees
25
24
Consultancy Fees
260
68
5,873
5,294
Total Fees
7,367
6,341
Investment management fees are based on valuations of the investments. The Fund is invested in pooled vehicles of
which the majority of fees are charged within the Funds. In order to be transparent, the Fund discloses these fees.
The gross fees included in the Pooled Vehicles amounted to £5.6m during the year (£5.3m during 2012/13).
Under the Public Audit Wales Act 2013, the Wales Audit Office is no longer able to hold reserves. As a consequence,
the Wales Audit Office advised in August 2014 that the Pension Fund would receive a distribution of accumulated
reserves of £7,127 in respect of prior year audit fees. In preparing the accounts, the level of redistribution was
estimated at £4,463. The difference in the level of redistribution is not reflected in the figures above.
The main increases in administration expenses are due to recruitment to vacant positions within the service area
and increased actuarial fees in respect of the triennial valuation. Within investment expenses, consultancy fees
reflect the implementation of the Fund’s new investment manager, Insight, who were appointed to manage the
Long Term Management of Funding Risk mandate in September 2013.
3. INVESTMENTS AND PERFORMANCE
Further details on the investment strategy are available in the Statement of Investment Principles which can be
obtained from the Clwyd Pension Fund Manager, County Hall, Mold, CH7 6NA (Web site
www.clwydpensionfund.org.uk or Telephone 01352 702264).
The Council uses the investment performance services of the WM Company. Their report for the financial year
2013/14 showed that the Fund achieved an overall return of +2.1% from its investments (+10.0% in 2012/13). This
compares with the Fund’s benchmark return of +3.7% for the year.
4. ANALYSIS OF TRANSACTIONS AND RETURN ON
INVESTMENTS Overview
The Fund invests its surplus monies in assets through a wide range of managers. All these main investments are
through pooled vehicles where the Fund is one of many investors and where these pooled monies are invested on a
common basis, although in the Fund’s alternative assets there are a couple of quoted holdings. Generally,
however, the Fund has no direct holdings of equities, bonds, properties, private equity companies, commodities or
other financial instruments.
50
Transactions and Return on Investments
Details of the 2013/14 investment transactions and the net profit on sales of £107.501m (£8.854m in 2012/13)
together with investment income of £2.721m (£2.397m in 2012/13) are set out below. The unrealised loss for
2013/14, because of the change in the market value of investments, amounted to £78.815m (£101.259m profit in
2012/13). Therefore, the increase in market value of investments (realised and unrealised) is £28.686m (£110.113m
in 2012/13).
Purchases, sales and realised profit were increased significantly during 2013/14 due to the redemption from SSgA
for developed equities. The proceeds were transferred to Insight who were appointed to the Funds Long Term
Management of Risk mandate (Liability Driven Investment).
Direct transaction costs are included in the cost of purchases and sale proceeds. Transaction costs are incremental
costs that are directly attributable to the acquisition and disposal of an investment. They include fees and commissions
paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges and transfer
taxes and duties. They are added to purchase costs or net ed against sales proceeds, as appropriate. These costs
cannot be directly identified as the Clwyd Pension Fund is almost wholly invested through pooled vehicles.
Investment income from these is reinvested within the vehicles and not shown separately.
Market Purchases
Sales
Realised
Unrealised
Market Investment
Value
Gain Gain (Loss)
Value
Income
2012/13
(Loss)
2013/14
£000
£000
£000
£000
£000
£000
£000
Fixed Interest Securities
175,148
174,002
(174,002)
43,451
(44,597)
174,002
0
Liability Driven Investment
0
230,000
0
0
(2,541)
227,459
0
UK Equities Passive
122,222
0
(136,167)
33,414
(19,469)
0
0
Overseas Equities Active
288,379
50,042
(49,281)
1,202
(8,999)
281,343
8
Overseas Equities Passive
103,218
0
(111,813)
22,576
(13,981)
0
0
Multi Strategy
120,380
130
0
0
(5,023)
115,487
0
Property
82,260
16,727
(8,050)
6
6,837
97,780
1,790
Infrastructure
23,907
3,847
(1,622)
631
2,873
29,636
203
Timber & Agriculture
20,511
3,068
(413)
0
(784)
22,382
0
Commodities
34,588
0
0
0
(2,504)
32,084
0
Private Equity
138,137
17,523
(22,991)
629
6,501
139,799
328
Opportunistic
5,910
5,679
(292)
0
1,220
12,517
254
Hedge Fund of Funds
47,070
0
(412)
83
1,652
48,393
0
1,161,730
501,018
(505,043)
101,992
(78,815) 1,180,882
2,583
Cash
17,331
0
0
0
0
31,928
0
Fees within Pooled Vehicles
0
0
0
5,579
0
0
0
Interest
0
0
0
0
0
0
138
Currency
0
0
0
(70)
0
0
0
17,331
0
0
5,509
0
31,928
138
Total 2013/14
1,179,061
501,018
(505,043)
107,501
(78,815) 1,212,810
2,721
1,083,854
54,629
(45,161)
8,854
101,259 1,179,061
2,397
2012/13
51
Market
Purchases Sales
Realised Unrealised
Market
Investment
Value
Gain
Gain (Loss)
Value
Income
2011/12
(Loss)
2012/13
£000
£000
£000
£000
£000
£000
£000
Fixed Interest Securities
170,075
0
(10,000)
2,382
12,691
175,148
0
UK Equities Passive
104,624
0
0
0
17,598
122,222
0
Overseas Equities Active
245,992
12,537
(4,857)
1,980
32,727
288,379
11
Overseas Equities Passive
88,152
0
0
0
15,066
103,218
0
Multi Strategy
118,080
123
0
0
2,177
120,380
0
Property
75,307
6,704
(5,358)
(2,816)
8,423
82,260
1,837
Infrastructure
23,414
5,086
(7,979)
2,510
876
23,907
250
Timber & Agriculture
14,686
4,761
(170)
0
1,234
20,511
0
Commodities
36,879
0
0
0
(2,291)
34,588
0
Private Equity
122,318
19,636
(15,461)
1,221
10,423
138,137
164
Opportunistic
0
5,782
0
0
128
5,910
11
Hedge Fund of Funds
47,321
0
(1,283)
228
804
47,070
0
Leveraged Loans
530
0
(53)
(1,880)
1,403
0
0
1,047,378
54,629
(45,161)
3,625
101,259 1,161,730
2,273
Cash
36,476
0
0
0
0
17,331
0
Fees within Pooled Vehicles
0
0
0
5,300
0
0
0
Interest
0
0
0
0
0
0
124
Currency
0
0
0
(71)
0
0
0
36,476
0
0
5,229
0
17,331
124
Total 2012/13
1,083,854
54,629
(45,161)
8,854
101,259 1,179,061
2,397
2011/12
1,051,611
230,350 (152,119)
7,907
13,190 1,083,854
3,326
5. MARKET VALUE OF INVESTMENTS (EXCLUDING CASH AND FUTURES)
The book cost of the investments as at 31st March 2014 is £1,047.423m (£949.455m in 2012/13). The market value
of investments as at 31st March 2014 is £1,180.882m (£1,161.730m in 2012/13); this can be analysed as follows:
By Continent
The UK holdings as at 31st March 2014 account for 27% of total investments at market value:
52
2014
2013
£000
£000
UK
323,254
203,154
Europe
118,047
142,201
Asia Pacific
76,598
119,172
North America
88,272
116,680
Emerging/ Frontier markets
83,023
91,714
Global Investments
491,688
488,809
1,180,882
1,161,730
By Fund Manager
2014
2013
£000
%
£000
%
BlackRock
50,922
4
56,385
5
Wellington
106,314
9
117,468
10
Aberdeen
85,391
7
93,876
8
Insight
227,459
19
0
0
Pioneer
1,539
0
2,001
0
Liongate
22,377
2
21,358
2
SSARIS
24,477
2
23,711
2
Duet
49,954
4
48,826
4
BlueCrest
32,032
3
31,470
3
Investec
71,768
6
62,797
5
Stone Harbor
174,002
15
175,148
15
SSgA
0
0
225,440
19
Pyrford
32,533
3
32,525
3
Property
97,780
8
82,260
7
Infrastructure
29,636
3
23,907
2
Timber / Agriculture
22,382
2
20,511
2
Private Equity
139,799
12
138,137
12
Opportunistic
12,517
1
5,910
1
1,180,882
100
1,161,730
100
53
By Listed /Managed
2014
2013
Listed
Listed
Unlisted
Listed
Listed
Unlisted
Managed
Managed
£000
£000
£000
£000
£000
£000
Fixed Interest Securities
0
0
174,002
0
0
175,148
UK Equities
0
0
0
122,222
0
0
Overseas Equities
231,389
0
49,954
328,800
0
62,797
Multi Strategy
115,487
0
0
120,380
0
0
Property
31,738
0
66,042
29,107
0
53,153
Infrastructure
0
5,549
24,087
0
4,764
19,143
Timber / Agriculture
0
0
22,382
0
0
20,511
Commodities
0
0
32,084
0
0
34,588
Private Equity
0
2,809
136,990
0
3,446
134,691
Hedge Fund of Funds
22,377
0
26,016
21,358
0
25,712
Opportunistic
0
0
12,517
0
0
5,910
Liability Driven Investment
227,459
0
0
0
0
0
628,450
8,358
544,074
621,867
8,210
531,653
1,180,882
1,161,730
6. FAIR VALUE OF INVESTMENTS
Financial Instruments
Whilst the Fund invests almost exclusively through pooled vehicles, the managers of these vehicles invest in a
variety of financial instruments including bank deposits, quoted equity instruments, fixed interest securities, direct
property holdings, unlisted equity products, commodity futures and other derivatives. This exposes the Fund to a
variety of financial risks including credit and counterparty risk, liquidity risk, market risk and exchange rate risk.
Stock lending is the loan of specific securities from one investor to another that entitles the lender to continue
receiving income generated by the stock plus an additional payment by the borrower. Exposure to risk is reduced
by the borrower providing high quality collateral (cash, securities or gilts). It is effectively a trading activity to
generate income rather than an investment. The Fund has no direct exposure to stock lending but the Fund’s
passive equity manager did use stock lending in its pooled vehicles to generate income as an offset to transaction
costs.
Fair Value – Valuation Bases
Investments are shown in the accounts at fair value as at 31st March 2014 on the following bases.
UK and overseas listed securities are valued within the respective pooled vehicles using the official bid prices
quoted on the relevant stock exchange. Overseas holdings are converted to sterling at an exchange rate
quoted at close of business on 31st March 2014.
Unit trusts are valued at the bid market price.
Other pooled vehicles are valued at the bid point of the latest process quoted by their respective managers or
fund administrators at 31st March 2014. Where a bid price is not available the assets are priced at the net asset
value provided.
54
Property funds are valued at the bid market price, which is based upon regular independent valuation of the
pooled vehicles’ underlying property holdings.
Private equity holdings are interests in limited partnerships. It is important to recognise the highly subjective
nature of determining the fair value of these investments. They are inherently based on forward looking estimates
and judgments involving many factors. These holdings are valued based upon the Fund’s share of the net assets
of the partnership according to the latest financial statements published by the respective managers. Where these
valuations are not at the Fund’s balance sheet date, the valuations are adjusted having due regard to the latest
dealings, asset values and other financial information available at the time of preparing these statements in
order to reflect the Fund’s balance sheet date. The managers’ valuation statements are prepared in accordance
with the European Private Equity and Venture Capital Association (EVCA) Guidelines, net of carried interest.
These incorporate the US-based FAS157 protocol on valuation approaches –
o Market – uses prices and other relevant data generated by market transactions involving identical or
comparable assets/liabilities (e.g. money multiples)
o Income – uses valuation techniques to convert expected future amounts to a single present amount
(discounted cash flows or earnings)
o Cost – based upon the amount that currently would be required to replace the service capacity of an asset
(adjusted for obsolescence)
Managers are required “to use the method that is appropriate in the circumstances and for which sufficient data
is used and to apply the approach consistently until no longer appropriate.” It is also possible to use multiple or
combinations of approaches. Most private equity managers use a combination of the “market” and “income”
approaches.
Infrastructure investments are generally carried at the lower of cost and fair value, except where there are
specific upward or downward valuations. In estimating fair value, managers use their judgment, having regard to
the EVCA guidelines noted above for valuing unquoted investments. Upward valuations are considered only
where there is validation of the investment objectives and such progress can be demonstrated. Downward
valuations are enacted regardless of the investment stage where the manager considers that there is impairment
to the underlying investment.
Timberland investments are carried at net asset value as determined by the General Partner. In most cases fair
value is derived from the audited financial statements provided by underlying managers or vehicles. In
circumstances where audited financial statements are not available to 31st March, the valuations are derived
from unaudited quarterly reports from the underlying managers or vehicles. Where the timber investments are
direct rather than through underlying managers, valuations are based upon regular independent valuation of
these holdings.
Commodity exposure is actively managed through the use of exchange traded and OTC derivative instruments
(Futures, Options and Swaps) and some securities. Exchange traded derivatives are priced using a vendor file sent
daily from Bloomberg with IDC as a second source. These prices are sourced directly from the derivative exchanges.
Options receive the last trade price on the primary exchange. If an option does not trade, the bid price is utilized to
value the option. Valuations for OTC options are sourced from brokers/dealers that are usually the counterparty to the
deal. If the necessary inputs are available from vendors on a schedule that permits same day pricing, OTC options may
be valued using a vendor- supplied option calculator, with the dealer price used to validate the model results. Residual
cash is primarily invested in short-dated investment-grade, US dollar- denominated debt obligations.
55
Funds of hedge funds and multi-strategy hedge funds are valued monthly to create a net asset value on the
basis of the Fund’s proportionate share of the value of underlying pools on a manager by manager basis.
Generally the fair value of the Fund’s investment in a related pool represents the amount that the Fund could be
reasonably expected to receive from the pool if the Fund’s investment was redeemed at the date of valuation,
based upon information reasonably available at the time that the valuation was made and that the fund believes
to be reliable.
GTAA funds invest for the most part in markets that are not exchange-based. These include OTC or “interdealer”
markets and leverage is utilized by such funds to a significant level. If market prices are not available or
do not reflect current market prices, the Fund applies its own pricing policies by reference to such relevant prices
as are available to establish a fair value for the assets held.
Fair Value – Hierarchy
The valuation of financial instruments has been classified into three levels according to the quality and reliability of
information used to determine fair values.
Level 1
Financial instruments at Level 1 are those where the fair values are derived from unadjusted quoted prices in active
markets for identical assets or liabilities. Products classified as level 1 comprise quoted equities, quoted fixed
interest securities and unit trusts. Listed investments are shown at bid price.
Level 2
Financial instruments at Level 2 are those where quoted market prices are not available, for example, where an
instrument is traded in a market that is not considered to be active, or where valuation techniques are used to
determine fair value and where those techniques use inputs that are based significantly on observable market data.
Level 3
Financial instruments at Level 3 are those where at least one input that could have a significant effect on the
instrument’s valuation is not based on observable market data. Such instruments would be unquoted equity
investments and hedge fund of funds, which are valued using various valuation techniques that require significant
judgment in determining appropriate assumption.
The following tables show the position of the Fund’s assets at 31st March 2014 and 31st March 2013 based upon
this hierarchy.
56
Market
Level 1
Level 2
Level 3
Value
2013/14
£000
£000
£000
£000
Fixed Interest Securities
174,002
17
173,985
0
Liability Driven Investment
227,459
227,459
0
0
Overseas Equities Active
281,343
280,147
1,196
0
Multi Strategy
115,487
47,377
68,110
0
Property (1)
97,780
0
31,738
66,042
Infrastructure (1)
29,636
5,549
0
24,087
Timber & Agriculture (1)
22,382
0
0
22,382
Commodities
32,084
15,432
16,652
0
Private Equity (2)
139,799
2,809
0
136,990
Hedge Fund of Funds
48,393
0
45,809
2,584
Opportunistic Funds (2)
12,517
0
0
12,517
1,180,882
578,790
337,490
264,602
Cash
31,928
31,928
0
0
Total 2013/14
1,212,810
610,718
337,490
264,602
(1) Property/ Infrastructure /Timber and Agriculture - Various valuation bases are used. Direct fund holdings are
valued based upon independent valuations, these have been classified as level 2, some funds also often hold joint
venture and partnership interests that are subject to a variety of valuation methodologies. To be conservative, these
funds have been classified Level 3 unless the fund itself is quoted.
(2) Private Equity and Opportunistic Funds - Various valuation bases are used including cost, quoted prices (often
discounted for “lock-ups”, transaction multiples, market multiples, future realisation proceeds, company prospects,
third party opinion etc. Company and fund valuations often reflect combinations of these valuation bases. To be
conservative, al funds have been classified Level 3 unless the fund itself is quoted.
Within the investments shown above as (1) or (2), whilst a smal proportion are listed, the majority of the holdings
are in unquoted investments; (£293.756m) compared to £262.515m in 2012/13. These are valued at a fair value by
the fund managers, using an appropriate basis of valuation. The valuations are reliant upon a significant degree of
judgment, and due to the subjectivity and variability of these valuations there is an increased likelihood that the
valuations included in the financial statements would not be realised in the event of a sale. The difference could be
materially lower or higher.
57
Market
Level 1
Level 2
Level 3
Value
2012/13
£000
£000
£000
£000
Fixed Interest Securities
175,148
70
175,078
0
UK Equities Passive
122,222
121,366
856
0
Overseas Equities Active
288,379
281,460
420
6,499
Overseas Equities Passive
103,218
102,495
723
0
Multi Strategy
120,380
64,504
55,876
0
Property (1)
82,260
0
0
82,260
Infrastructure (1)
23,907
4,764
0
19,143
Timber Agriculture (1)
20,511
0
0
20,511
Commodities
34,588
14,496
20,092
0
Private Equity (2)
138,137
3,446
0
134,691
Hedge Fund of Funds
47,070
0
43,997
3,073
Opportunistic Funds (2)
5,910
0
0
5,910
1,161,730
592,601
297,042
272,087
Cash
17,331
17,331
0
0
Total 2012/13
1,179,061
609,932
297,042
272,087
7. INVESTMENT RISKS
As demonstrated, the Fund maintains positions in a variety of financial instruments including bank deposits, quoted
equity instruments, fixed interest securities, direct property holdings and unlisted equity products. This exposes the
Fund to a variety of financial risks including credit and counterparty risk, liquidity risk, market risk and exchange
rate risk.
Procedures for Managing Risk
The principal powers to invest are contained in the Local Government Pension Scheme (Management and Investment
of Funds) Regulations 2009 (amended) and require an Administering Authority to invest any pension fund money
that is not needed immediately to make payments from the Pension Fund. These regulations require the Pension
Fund to formulate a policy for the investment of its fund money. The Administering Authority’s overal risk management
procedures focus on the unpredictability of financial markets and implementing restrictions to minimise these risks.
The Pension Fund annually reviews its Statement of Investment Principles (SIP) and corresponding Funding
Strategy Statement (FSS), which set out the Pension Fund’s policy on mat ers such as the type of investments to be
held, balance between types of investments, investment restrictions and the way risk is managed. The SIP and FSS
can be found on the Fund’s website (www.clwydpensionfund.org.uk).
58
The Fund carries out a formal review of its structure at least every 4 years, usually every 3 years. The last review
was carried out in 2010 and implemented in April 2011. The next review is expected to be undertaken during 2014.
The Fund’s optimisation model, used to help determine the Fund’s strategic benchmark, suggests that the asset
mix so determined coupled with the requirements for certain fund managers to outperform their market indices
should produce long-term returns of just over 9% with a volatility of around 10%. A key element in this review
process is the consideration of risk and for many years now the Fund has pursued a policy of lowering risk by
diversifying investments across asset classes, investment regions and fund managers. Furthermore, alternative
assets are subject to their own diversification requirements and some examples are given below.
private equity – by stage, geography and vintage where funds of funds are not used
property – by type, risk profile, geography and vintage (on closed-ended funds)
infrastructure – by type (primary/secondary), geography and vintage
hedge funds – multi-strategy or funds of funds
In September 2013, the Fund appointed Insight to manage a Long Term Management of Risk mandate. The
mandate was funded by disinvesting the Fund’s developed passive equity holding managed by SSgA. The cash
raised from the redemption is used, in part, as collateral to replicate the Fund’s developed passive equity allocation
using Equity Total Return Swaps (TRS), the remainder to provide the ability to implement a liability hedging
mandate.
Once complete, the strategy will provide a framework to enable the Fund to effectively reduce risk when market
conditions become more favourable (i.e. bonds become cheaper). The framework will include both market yield
based triggers and funding level triggers. In particular, the manager wil make use of Liability Driven Investment
(LDI) techniques to increase the level of hedging within the Fund. This can be achieved through the physical
purchase of gilts along with repurchase agreements (repo). These allow the fund to gain “unfunded” exposure to
gilts.
Roll risk
The LDI manager has the facility to use repurchase agreements, once these agreements mature, they needs to be
replaced with other contracts to maintain the relevant exposure (known as “rolling” the contract). This involves
managing the operational risks raised to ensure sufficient resources are in place to arrange the trades and manage
the process. In addition, as a contract matures, the underlying market for repo may become illiquid and at the
extreme, the manager may not be able to rol the position. This is mitigated by structuring the overall repo over a
range of maturity dates and diversifying counterparty exposure.
Manager Risk
The Fund is also well diversified by manager with no single manager managing more than 19% of Fund assets. On
appointment, fund managers are delegated the power through an investment management agreement to make such
purchases and sales as they deem appropriate under the mandate concerned. Each mandate has a benchmark or
target to outperform or achieve, usually on the basis of 3-year rolling periods. An update, at least quarterly, is
required from each manager and regular meetings are held with managers to discuss their mandates and their
performance on them. There are slightly different arrangements for some of the alternative assets. On private
equity, property, infrastructure and timber/agriculture, investment is fund rather than manager-specific, with specific
funds selected by the in-house team after careful due diligence. These commitments tend to be smaller in nature
than main asset class investments but again regular performance reports are received and such investments are
reviewed with managers at least once a year.
59
Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment
that it has entered into with the Fund. As noted above, almost all the Fund’s investment are through pooled
vehicles and a number of these are involved in derivative trades of various sorts, including futures, swaps and
options. Whilst the Fund is not a direct counterparty to such trades and so has no direct credit risk, clearly all
derivative transactions incorporate a degree of risk and the value of the pooled vehicle, and hence the Fund’s
holding, could be impacted negatively by failure of one of the vehicle’s counterparties.
However, part of the operational due diligence carried out on potential manager appointees concerns itself with the
quality of that manager’s risk processes around counterparties and seeks to establish assurance that these are
such as to minimise exposure to credit risk. Once appointed, managers are required to provide copies of their
annual internal control reports for review to ensure that the standards expected are maintained.
Deposits are not made with banks and financial institutions unless they are rated independently and meet the
council’s minimum credit criteria.
Subject to cash flow requirements, cash can be deposited in one of the following:
The Pension Fund bank account with the National Westminster Bank for daily liquidity
A National Westminster deposit account with access up to 180 days’ notice
A Money Market AAA Fund for unexpected liquidity requirements or higher rates of return.
The Fund believes it has managed its exposure to credit risk and has no experience of default or uncollectible
deposits in the last three financial years. The Fund’s cash holdings as at 31st March 2014 were £31.928m
(£17.331m at 31st March 2013). This was held as follows:
2014
2013
Rating
£000
£000
Money Market Funds
Blackrock
AAA
480
478
Bank of New York Mellon
AAA
928
979
Bank Deposit Accounts
National Westminster Bank PLC
AA
30,500
15,850
Bank Current Accounts
National Westminster Bank PLC
AA
20
24
31,928
17,331
Within the Fund, the areas of focus in terms of credit risk are bonds and some of the alternative asset categories.
The Fund’s bond portfolio is managed on an unconstrained basis and has a significant exposure to credit,
emerging market debt and loans. At 31st March 2014, the Fund’s exposure to non-investment grade paper was
£66.2 million or 38.0% of the fixed interest portfolio (29.5% at 31st March 2013).
On private equity and infrastructure the Fund’s investments are almost entirely in the equity of the companies
concerned.
The Fund also has residual “side pocketed” holdings with one manager, which are currently illiquid. Details of
this holding is set out as follows :
Book Cost
Market
Value
£000
£000
Hedge Fund of Funds - Pioneer
1,218
1,539
1,218
1,539
60
Liquidity Risk
The Pension Fund has its own bank account. At its simplest, liquidity risk is the risk that the Fund will not be able to
meet its financial obligations when they fall due, especially pension payments to its members. At a strategic level the
Administering Authority, together with its consulting actuary, reviews the position of the Fund triennially to ensure
that all its obligations can be suitably covered. Ongoing cash flow planning in respect of contributions, benefit
payments, investment income and capital calls/distributions is also essential and undertaken regularly by the Fund.
Specifically on investments, the Fund holds through its managers a mixture of liquid, semi-liquid and illiquid assets.
Whilst the Fund’s investment managers have substantial discretionary powers regarding their individual portfolios
and the management of their cash positions, they hold within their pooled vehicles a large value of very liquid
securities, such as equities and bonds quoted on major stock exchanges, which can easily be realised. Traditional
equities (including synthetic equity exposure) and bonds now comprise 56% of the Fund’s total value and, whilst
there will be some slightly less liquid elements within this figure (emerging market equities and debt for example),
the funds investing in these securities of er monthly trading at worst – often weekly or fortnightly.
On alternative assets the position is more mixed. Whilst there are a couple of quoted vehicles here, most are
subject to their own liquidity terms or, in the case of property, redemption rules. Closed-ended funds such as most
private equity vehicles and some property and infrastructure funds are ef ectively illiquid for the specified fund
period (usually 10 years), although they can be sold on the secondary market, usually at a discount.
The table below analyses the value of the Fund’s investments at 31st March 2014 by liquidity profile.
Market
1 Month
2 - 3
3 - 6
6 - 12
Closed -
Locked
Value
Months
Months
Months
ended
2013/14
£000
£000
£000
£000
£000
£000
£000
Fixed Interest Securities
174,002
174,002
0
0
0
0
0
Liability Driven Investment
227,459
227,459
0
0
0
0
0
Overseas Equities Active
281,343
276,431
4,912
0
0
0
0
Multi Strategy
115,487
115,487
0
0
0
0
0
Property
97,780
0
0
0
31,738
66,042
0
Infrastructure
29,636
5,549
0
0
0
24,087
0
Timber & Agriculture
22,382
0
0
0
0
22,382
0
Commodities
32,084
32,084
0
0
0
0
0
Private Equity
139,799
2,809
0
0
0
136,990
0
Hedge Fund of Funds
48,393
0
0
46,854
0
0
1,539
Opportunistic Funds
12,517
0
0
0
0
12,517
0
1,180,882
833,821
4,912
46,854
31,738
262,018
1,539
It should be noted that different quoted investments are subject to different settlement rules but all
payments/receipts are usually due within 7 days of the transaction (buy/sell) date. Because the Fund uses pooled
vehicles for quoted investments these are often subject to daily, weekly, 2-weekly or monthly trading dates. All such
investments have been designated “within 1 month” for the purposes of liquidity analysis. Open-ended property
funds are subject to redemption rules set by their management boards. Many have quarterly redemptions but these
can be held back in difficult markets so as not to force sales and disadvantage continuing investors. For liquidity
analysis purposes, a conservative approach was applied and all such investments have been designated “within 6- 12
months”.
61
Closed-ended funds have been designated illiquid for the purposes of liquidity analysis. However, these closed-
ended vehicles have a very different cash flow pattern to traditional investments since the monies committed are
only drawn down as the underlying investments are made (usually over a period of 5 years) and distributions are
returned as soon as underlying investments are exited (often as early as year 4).
In terms of cash flow, therefore, the net cash flow for such a vehicle usually only reaches a maximum of about 60-
70% of the amount committed and cumulative distributions usually exceed cumulative draw downs, wel before the
end of the specified period, as these vehicles regularly return 1½ to 2½ times the money invested. At the same
time, it has been the Fund’s practice to invest monies on a regular annual basis so the vintage year of active
vehicles ranges from 1997 to 2013. This means that, whilst all these monies have been designated closed-ended
and thereby illiquid on the basis of their usual “10-year life”, many are closer to maturity than implied by this broad
designation.
As can be seen from the table, even using the conservative basis outlined above, around 71% of the portfolio is
realisable within 1 month.
Market Risk
Market risk is the risk that the fair value or future cash flows of a financial institution will fluctuate because of
changes in market price. The Fund is exposed to the risk of financial loss from a change in the value of its
investments and the consequential danger that its assets will fail to deliver returns in line with the anticipated
returns underpinning the valuation of its liabilities over the long term.
Market risk is comprised of two elements –
The risks associated with volatility in the performance of the asset class itself (beta);
The risks associated with the ability of managers, where allowed, to move away from index weights and to
generate alpha, thereby offsetting beta risk by exceeding market performance.
The following table sets out an analysis of the Fund’s market risk positions at 31st March 2014 by showing the
amount invested in each asset class and through each manager within each main asset class, the index used as a
benchmark, the target set for managers against this benchmark and managers’ maximum target volatility (or risk)
against index in achieving this.
This target volatility is a measure of the maximum degree of dispersion of likely results compared with the selected
benchmark.
62
Manager
Market Benchmark
Target
Risk(<)
Value
2013/14
£000
(Gross)
%
Fixed Interest Securities
Stone Harbor
174,002 FT All Stocks
+1.5%
4.0
Liability Driven Investment
Insight
227,459 Liability / FTSE
Match
Foreign equities–active
Investec
71,768 MSCI AC World NDR
+3.5%
10.0
Aberdeen
76,598 MSCI AC Asia/P ex Japan
+3.0%
12.0
Aberdeen
8,793 MSCI Frontier Markets
+3.0%
12.0
Wel ington
74,230 MSCI EM Free
+2.5%
8.0
Duet
49,954 Absolute
+8-10%
3.0
Multistrategy funds
BlackRock
50,922 7 day LIBID
+15.0%
20.0
BlueCrest
32,032 Absolute
+10-15%
6.0
Pyrford
32,533 RPI
+5.0%
8.0
Hedge fund of funds
Liongate
22,377 Absolute
+8-10%
6.0
SSARIS
24,477 Absolute
+8-10%
5.0
Pioneer
1,539 Absolute
+8-10%
4.0
Commodity fund
Wel ington
32,084 GCSI Equally Weighted
+1.5%
4.0
Property funds
Various
97,780 IPD Balanced PUTs
Exceed
Infrastructure funds
Various
29,636 Absolute
+15.0%
Timber /Agricultural funds
Various
22,382 Absolute
+15.0%
Private equity funds
Various
139,799 Absolute
+15.0%
Opportunistic funds
Various
12,517 Absolute
+15.0%
1,180,882
The risks associated with volatility in market values are mainly managed through a policy of broad asset diversification.
The Fund sets restrictions on the type of investment it can hold through investment limits, in accordance with
the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 (as amended).
The Fund also adopts a specific strategic benchmark (details are in the Fund’s SIP) and the weightings of the
various asset classes within the benchmark form the basis for asset allocation within the Fund. Under normal
conditions, there is quarterly rebalancing to this strategic benchmark within fixed tolerances. This allocation,
determined through the Fund’s asset allocation model, is designed to diversify and minimise risk for a specific level
of performance through a broad spread of investments across both the main and alternative asset classes and
geographic regions within each asset class. The current strategic benchmark is targeted to produce long-term
returns of just over 9% with a volatility of around 10%.
Market risk is also managed through manager diversification – constructing a diversified portfolio across multiple
investment managers. On a daily basis, managers will manage risk in line with the benchmarks, targets and risk
parameters set for the mandate, as well as their own policies and processes. The Fund itself monitors managers on a
regular basis (at least quarterly) on all these aspects. On property and private equity, fund and manager
diversification is vital and, whilst a full list of investments is not detailed here, the Fund has exposures as follows:
Market Value Managers
Funds
Properties/Companies
2014
Estimated
£000
No.
No.
No.
Real Assets
149,797
21
36
>280
Private Equity/Opportunistic
152,316
19
61
>4,000
63
Other Price Risk
Other price risk represents the risk that the value of a financial instrument wil fluctuate as a result of changes in
market prices (other than those arising from interest rate risk or foreign exchange risk), whether those changes are
caused by factors specific to the individual instrument or its issuer or factors af ecting all such instruments.
The fund is exposed to share and derivative price risk. This arises from investments held by the fund for which the
future price is uncertain. All securities investments present a risk of loss of capital. The fund’s investment managers
mitigate this price risk through diversification and the selection of securities and other financial instruments is
monitored by the fund to ensure it is within limits specified in the fund’s investment strategy.
Following analysis of historical data and expected investment return movement during the financial year, in
consultation with the fund’s performance measurer, WM Company, the fund has determined that the fol owing
movements in market price risk are reasonably possible for the 2013/14 reporting period:
Asset Type
Potential Market Movements
(+ / -)
Global Equity inc UK
7.97%
UK Equity
12.25%
Oveseas Equity
12.30%
Global Fixed Income
5.34%
Alternatives
2.93%
Property
3.71%
Cash
0.02%
The sensitivities are consistent with the assumptions provided by WM Company based on historic data collated for
the Fund. The analysis assumes that al other variables, in particular foreign currency exchange rates and interest
rates remain the same.
Had the market price of the Fund’s investments increased / decreased in line with the above, the change in the net
assets available to pay benefits in the market place would have been as fol ows (prior year comparator also provided).
Asset Type
Market
Percentage
Value on Value on
Value
Change
Increase Decrease
2013/14
%
£000
£000
Cash and cash equivalents
31,928
0.02
31,934
31,922
Investment portfolio
assets:-
Global Equity inc UK
121,722
7.97
131,423
112,021
UK Equity
0
12.25
0
0
Overseas Equity
159,621
12.30
179,254
139,988
Global Fixed Income
174,002
5.34
183,294
164,710
Alternatives
627,757
2.93
646,150
609,364
Property
97,780
3.71
101,408
94,152
1,212,810
1,273,463 1,152,157
64
Asset Type
Market Percentage
Value on Value on
Value
Change Increase Decrease
2012/13
%
£000
£000
Cash and cash equivalents
17,331
0.0
17,331
17,331
Investment portfolio assets:-
Global Equity inc UK
111,623
11.8
124,795
98,451
UK Equity
122,222
14.2
139,578
104,866
Overseas Equity
279,974
12.7
315,531
244,217
Global Fixed Income
175,148
4.9
183,730
166,566
Alternatives
390,503
3.3
403,390
377,616
Property
82,260
3.7
85,304
79,216
1,179,061
1,269,659 1,088,263
Interest Rate Risk
The Fund invests in financial assets for the primary purpose of obtaining a return investments. These investments
are subject to interest rate risks, which represent the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates.
The Fund recognises that interest rates can vary and affect both the income to the fund and the net assets
available to pay benefits. The Fund’s Fixed Income manager has advised that they have revised their expectation
from a small change of 50 basis points (bps) to 75 bps from one year to the next. As the fund does not use Fixed
Income securities to provide income, the following sensitivity analysis only refers to cash and cash balances.
Asset Type
Carrying Value Change in year in net assets
available to pay benefits
2013/14
+75BPS
-75BPS
£000
£000
£000
Cash and cash equivalents
1,408
11
(11)
Cash balances
30,520
229
(229)
31,928
240
(240)
Asset Type
Carrying Value Change in year in net assets
available to pay benefits
2012/13
+50BPS
-50BPS
£000
£000
£000
Cash and cash equivalents
1,457
7
(7)
Cash balances
15,874
79
(79)
17,331
86
(86)
65
Currency Risk
Currency risk represents the risk that the fair value of future cash flows of a financial instrument will fluctuate because
of the changes in foreign exchange rates. The Fund is exposed to currency risk on financial instruments that are
denominated in any other currency other than the functional currency of the Fund (GBP). The Fund holds assets
denominated in currencies other than GBP.
The following table summarises the Fund’s currency exposure as at 31st March 2014 and as at the previous year end:
Currency Exposure - Asset Type
Market
Market
Value
Value
2013/14
2012/13
£000
£000
Global Fixed Income
174,002
175,148
Overseas Equities Active
281,343
288,379
Overseas Equities Passive
0
103,218
Multi Strategy
115,487
120,380
Commodities
32,084
34,588
Hedge Funds
48,393
47,070
Property
38,374
39,755
Infrastructure
15,600
11,521
Timber / Agriculture
22,382
20,511
Opportunistic
12,517
5,910
Private Equity
117,446
112,096
857,628
958,576
Following analysis of the historical data in consultation with the fund’s Performance Measurers, WM Company, and
analysis of the exposures to foreign currency for the year to 31st March 2014, it was considered that the likely volatility
associated with foreign exchange rate movements to be 5.06%. For the period to 31st March 2013, this was calculated
to be 5.1%.
This analysis assumes that all other variables, in particular interest rates, remain constant. These individual year
percentages strengthening / weakening against the various currencies in which the fund hold investments would
increase / decrease the net assets available to pay benefits as follows:
Currency Exposure -
Market
Percentage Value on
Value on
Asset Type
Value
Change
Increase
Decrease
2013/14
%
£000
£000
Global Fixed Income
174,002
5.06
182,801
165,203
Overseas Equity – Active
281,343
5.06
295,571
267,115
Overseas Equity - Passive
0
5.06
0
0
Multi-strategy
115,487
5.06
121,327
109,647
Hedge Funds of Funds
48,393
5.06
50,840
45,946
Commodities
32,084
5.06
33,707
30,461
Timber & Agriculture
22,382
5.06
23,514
21,250
Infrastructure
15,600
5.06
16,389
14,811
Property
38,374
5.06
40,315
36,433
Opportunistic
12,517
5.06
13,150
11,884
Private Equity
117,446
5.06
123,385
111,507
857,628
900,999
814,257
66
Currency Exposure -
Market
Percentage Value on
Value on
Asset Type
Value
Change
Increase
Decrease
2012/13
%
£000
£000
Global Fixed Income
175,148
5.1
184,073
166,223
Overseas Equity – Active
288,379
5.1
303,074
273,684
Overseas Equity - Passive
103,218
5.1
108,478
97,958
Multi-strategy
120,380
5.1
126,514
114,246
Hedge Funds of Funds
47,070
5.1
49,469
44,671
Commodities
34,588
5.1
36,351
32,825
Timber & Agriculture
20,511
5.1
21,556
19,466
Infrastructure
11,521
5.1
12,108
10,934
Property
39,755
5.1
41,781
37,729
Opportunistic
5,910
5.1
6,211
5,609
Private Equity
112,096
5.1
117,808
106,384
958,576
1,007,423
909,729
8. OTHER INVESTMENTS
2014
2013
£000
£000
£000
£000
Other Investment Assets :
Sale of Investments / Income accrual
0
874
0
874
Other Investment Liabilities :
Purchases of investments
0
0
0
0
Other Investment Balances
0
874
67
9. DEBTORS/CREDITORS
2014
2013
£000
£000
£000
£000
Current Assets :
Contributions due - Employees
1,160
1,099
Contributions due - Employers
2,276
2,105
Added years
26
52
H.M. Revenue and Customs
41
54
Pension strain
1,063
251
Administering authority
2
210
Miscellaneous
177
74
4,745
3,845
Less Current Liabilities :
Lump sums
(2,782)
(1,774)
Death grants
(531)
(131)
Administering authority
(236)
(303)
Added years
(81)
(55)
Miscellaneous
(358)
(285)
(3,988)
(2,548)
Net Current Assets
757
1,297
Analysis of debtors
2014
2013
£000
£000
Central Government Bodies
41
54
Other Local Authorities
4,174
3,468
Other Entities and Individuals
530
323
4,745
3,845
Analysis of creditors
2014
2013
£000
£000
Other Local Authorities
(298)
(331)
Other Entities and Individuals
(3,690)
(2,217)
(3,988)
(2,548)
68
10. POST BALANCE SHEET EVENT
The accounts outlined within the statement represent the financial position of the Clwyd Pension Fund as at 31st
March 2014. Since this date, the performance of the global equity markets may affect the financial value of pension
fund investments. This movement does not affect the ability of the Fund to pay its pensioners.
Changes have been agreed to the Local Government Pension Scheme which will take ef ect from 1st April 2014.
These changes will not impact the Statement of Accounts for 2013/14. A Clwyd Pension Fund Committee has now
replaced the Clwyd Pension Fund Panel.
11. ADDITIONAL VOLUNTARY CONTRIBUTIONS (AVCs)
A market value or an estimate thereof has not been included for the money purchase AVC investments. These
assets are specifically allocated to the provision of additional benefits for particular members. The Clwyd Pension
Fund has the services of two AVC providers (Prudential and Equitable Life) for members’ additional benefits with
the funds being invested in a range of investment products including fixed interest, equity, cash, deposit, property
and socially responsible funds, as follows :-
Contributions paid
£
885,208
Units purchased
No.
158,984
Units sold
No.
63,801
Market value as at 31st March 2014
£
4,766,107
Market value as at 31st March 2013
£
4,404,457
12. RELATED PARTY TRANSACTIONS
Governance
Under legislation, introduced in 2004, Councillors are entitled to join the Pension Scheme. As at 31st March 2014,
two Members of the Pension Panel have taken this option. The Members of the Pension Fund Panel do not receive
any fees in relation to their specific responsibilities as members of the Panel.
Key Management Personnel
No senior officers responsible for the administration of the Fund have entered into any contract, other than their
contract of employment with the Council, for the supply of goods or services to the Fund. Kerry Feather, the Head
of Finance (Treasurer and Administrator to the Clwyd Pension Fund) has been identified as holding a key position in
the financial management of the fund.
Flintshire County Council
In the course of fulfilling its role as administering authority to the Fund, Flintshire County Council provided services to
the Fund for which it charged £1,023k (£791k in 2012/13).
These costs are in respect of those staff employed in ensuring the pension service is delivered, and other costs
such as payrol and information technology. The costs are included in the accounts within administration expenses
(see note 2). At the year end, a net balance of £234k was owing to Flintshire in relation to creditors payments made on
behalf of the fund and support service costs which were not available as at 31st March 2014 (£93k in 2012/13).
69
10. CONTINGENT LIABILITIES AND CONTRACTUAL COMMITMENTS
As at 31st March 2014, the Fund has contractual commitments of £542.0m (£458.4m in 2012/13) in private equity
and property funds, of which £371.8m (£323.4m in 2012/13) has been invested, leaving an outstanding commitment
of £170.2m (£135.0m in 2012/13).
11. TRANSACTION COSTS
Transaction costs are incremental costs that are directly attributable to the acquisition or disposal of an investment.
They include fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies
and securities exchanges and transfer taxes and duties. They can be added to purchase costs or netted against
sales proceeds, as appropriate. These costs cannot be directly identified as the Clwyd Pension Fund is wholly
invested in pooled vehicles.
12. ACTUARIAL VALUATION & VALUE OF PROMISED RETIREMENT BENEFITS FOR THE PURPOSE OF IAS 26
(Provided by the Fund’s Actuary)
CLWYD PENSION FUND
Accounts for the year ended 31 March 2014 - Statement by the Consulting Actuary
This statement has been provided to meet the requirements under Regulation 57(1)(d) of The Local Government
Pension Scheme Regulations 2013.
An actuarial valuation of the Clwyd Pension Fund was carried out as at 31 March 2013 to determine the contribution
rates for the period 1 April 2014 to 31 March 2017.
On the basis of the assumptions adopted, the Fund’s assets of £1,181 million represented 68% of the Fund’s past
service liabilities of £1,733 million (the “Funding Target”) at the valuation date. The deficit at the valuation date was
therefore £552 million.
The valuation also showed that a common rate of contribution of 13.8% of pensionable pay per annum was
required from employers. The common rate is calculated as being sufficient in the long term, together with
contributions paid by members, to meet all liabilities arising in respect of service after the valuation date. It allows
for the new LGPS benefit structure ef ective from 1 April 2014.
70
After the valuation date, there were significant changes in financial markets. In particular there was an increase in
gilt yields, which underpin the liability assessment. This improved the funding position materially to 73% with a
resulting deficit of £449 million. This improvement was taken into account when setting the deficit contribution
requirements for employers where required to stabilise contribution rates. On average across the Fund, the
updated deficit would be eliminated by a contribution addition of £27.4m per annum increasing at 4.1% per annum
(equivalent to approximately 11.8% of projected Pensionable Pay at the valuation date) for 18 years if all assumptions
are borne out in practice.
Further details regarding the results of the valuation are contained in the formal report on the actuarial valuation
dated March 2014.
In practice, each individual employer’s position is assessed separately and the contributions required are set out in
the report. In addition to the certified contribution rates, payments to cover additional liabilities arising from early
retirements (other than ill-health retirements) will be made to the Fund by the employers.
The funding plan adopted in assessing the contributions for each individual employer is in accordance with the
Funding Strategy Statement (FSS). Any different approaches adopted, e.g. with regard to the implementation of
contribution increases and deficit recovery periods, are as determined through the FSS consultation process.
The valuation was carried out using the projected unit actuarial method and the main actuarial assumptions used
for assessing the Funding Target and the common contribution rate were as follows:
For past service
For future service liabilities
liabilities (Funding
(Common Contribution
Target)
Rate)
Rate of return on investments (discount rate) 4.6% per annum
5.6% per annum
Rate of pay increases
4.1% per annum*
4.1% per annum
Rate of increases in pensions
in payment (in excess of
2.6% per annum
2.6% per annum
Guaranteed Minimum Pension)
* allowance was also made for short-term public sector pay restraint over a 3 year period.
The assets were assessed at market value.
The next triennial actuarial valuation of the Fund is due as at 31 March 2016. Based on the results of this
valuation, the contribution rates payable by the individual employers will be revised with ef ect from 1 April 2017.
71
Actuarial Present Value of Promised Retirement Benefits for the Purposes of IAS 26
IAS 26 requires the present value of the Fund’s promised retirement benefits to be disclosed, and for this purpose the
actuarial assumptions and methodology used should be based on IAS 19 rather than the assumptions and
methodology used for funding purposes.
To assess the value of the benefits on this basis, we have used the following financial assumptions as at 31 March 2014
(the 31 March 2013 assumptions are included for comparison):
31 March 2013
31 March 2014
Rate of return on investments (discount rate)
4.2% per annum
4.5% per annum
Rate of pay increases
3.9% per annum
3.9% per annum*
Rate of increases in pensions in payment (in 2.4% per annum
2.4% per annum
excess of Guaranteed Minimum Pension)
* includes a corresponding allowance to that made in the actuarial valuation for short-term public
sector pay restraint.
The demographic assumptions are the same as those used for funding purposes. Full details of these assumptions are
set out in the formal report on the actuarial valuation dated March 2014.
During the year, corporate bond yields increased, resulting in a higher discount rate being used for IAS26 purposes at
the year end than at the beginning of the year (4.5% p.a. versus 4.2% p.a.). The pay increase assumption at the year
end has also changed to al ow for a short-term public sector pay restraint as detailed in the actuarial valuation.
The value of the Fund’s promised retirement benefits for the purposes of IAS26 as at 31 March 2013 was estimated as
£1,901 million. The effect of the changes in actuarial assumptions between 31 March 2013 and 31 March 2014 as
described above is to decrease the liabilities by c£101 million. Adding interest over the year increases the liabilities
by c£80 million, and allowing for net benefits accrued/paid over the period increases the liabilities by another c£10
million (including any increase in liabilities arising as a result of early retirements/augmentations). Finally, allowing
for actual vs expected membership experience, which emerged at the 2013 valuation, gives a reduction in liabilities
of c£88 million.
The net effect of al the above is that the estimated total value of the Fund’s promised retirement benefits as at 31
March 2014 is therefore £1,802 million.
Paul Middleman
Fellow of the Institute and Faculty of Actuaries
Mercer Limited
June 2014
72
Governance Policy and Compliance Statement
GOVERNANCE POLICY
Introduction and Legal Requirements
Flintshire County Council is the Administering Authority responsible for maintaining and managing
the Clwyd Pension Fund on behalf of its stakeholders; the scheme members and employers
participating in the Fund. These responsibilities are primarily set out in Local Government Pension
Scheme regulations.
Flexibility is provided for each Administering Authority to determine their own governance
arrangements. However the Local Government Pension Scheme Regulations require each
Administering Authority to prepare, publish and maintain a governance policy and compliance
statement setting out whether the Administering Authority delegates its functions, or part of its
functions to a committee, a sub-committee or an officer of the authority, and if so:
a) the terms, structure and operational procedures of the delegation,
b) the frequency of any committee or sub-committee meetings,
c) whether such a committee or sub-committee includes representatives of Scheme employers
or members, and if so, whether those representatives have voting rights
d) the extent to which a delegation, or the absence of a delegation, complies with guidance
given by the Secretary of State and, to the extent that it does not so comply, the reasons for
not complying, and
e) details of the terms, structure and operational procedures relating to the local pension board
The regulations require Administering Authorities to consult such persons as it considers appropriate
when preparing the policy and compliance statement.
This document is the Governance Policy and Compliance Statement for Clwyd Pension Fund that
has been prepared to meet the requirement of the Local Government Pension Scheme Regulations.
The compliance statement required by point (d) is included as Appendix A. This statement of policy
and compliance will be updated in relation to the requirements of (e) by April 2015, which is the date
the local pension board must be established by and the Pensions Regulator becomes responsible
for oversight of some LGPS governance matters.
Aims and Objectives
Flintshire County Council recognises the significance of its role as Administering Authority to the
Clwyd Pension Fund on behalf of its stakeholders which include:
around 33,000 current and former members of the Fund, and their dependents
around 25 employers within the Flintshire, Denbighshire and Wrexham Council areas
the local taxpayers within those areas
73
Our Fund's Mission Statement is:
We will be known as forward thinking, responsive, proactive and professional providing
excellent customer focused, reputable and credible service to all our customers.
We will have instilled a corporate culture of risk awareness, financial governance, and will be
providing the highest quality, distinctive services within our resources.
We will work effectively with partners, being solution focused with a can do approach.
In relation to the governance of the Fund we will aim to:
Act in the best interests of the Fund’s members and employers
Have robust governance arrangements in place, to facilitate informed decision making,
supported by appropriate advice, policies and strategies
Ensure the Pension Fund is managed and its services delivered by people who have the
appropriate knowledge and expertise
Act with integrity and be accountable to our stakeholders for our decisions, ensuring they are
robust and well based
Understand and monitor risk
Strive to ensure compliance with the appropriate legislation and statutory guidance, and to act
in the spirit of other relevant guidelines and best practice guidance
Clearly articulate our objectives and how we intend to achieve those objectives through
business planning, and continually measure and monitor success
Background to Governance Arrangements
Flintshire County Council reviewed its Governance arrangements for the Clwyd Pension Fund in
2014. Prior to this date, the responsibility for the Clwyd Pension Fund rested with the Head of
Finance who reported to the Clwyd Pension Fund Panel made up of elected members from Flintshire
County Council, Denbighshire County Council and Wrexham County Borough Council. In addition
the panel had non-voting members including an independent adviser and a scheme member
representative.
An independent review by CIPFA in 2010 found the governance of the Fund to be very good but
recognised that this governance structure did not meet best practice, in particular they
recommended:
Responsibility for the management of the Clwyd Pension Fund should be transferred from the
Head of Finance to a newly constituted Committee
There should be wider representation of stakeholders on the newly constituted committee with
voting rights extended to all committee members.
As a result, in May 2014, the Fund's governance arrangements were reviewed and the Council
established a formal Pension Fund Committee, supported by a Pensions Advisory Panel. The
Corporate Finance Manager is the Section 151 Officer has a statutory responsibility for the proper
financial affairs of Flintshire County Council which including Clwyd Pension Fund matters. In
addition, the Council has delegated specific responsibilities to the Chief Officer – People and
Resources. It is expected that this governance structure will be expanded later in 2014 or early
2015 as a result of the requirement by the Public Service Pensions Act 2013 to introduce a local
pension board to assist in compliance of pension fund matters. Taking this into account, the
Council's governance structure for pension fund matters is as shown below.
74
FLINTSHIRE COUNTY
LOCAL BOARD
COUNCIL
Oversight of
(No Decision Making Power)
ADMINISTERING
Compliance
AUTHORITY
Equal Number of Employee and Employer
Representatives
Constitution Delegates
Decision Making
CLWYD PENSION FUND
COMMITTEE
5 FCC Elected Members
SECTION 151
1 DCC Elected Member
OFFICER
1 WCBC Elected Member
1 Other Scheduled Body
Statutory Responsi
bility:
1 Member Representative
Financ
ial Administration
ADVISORY PANEL
Scheme of
Corporate Finance Manager
Delegation
Chief Officer, People & Resources
Clwyd Pension Fund Manager
Consultation
Investment Consultant
CHIEF OFFICER,
Fund Actuary (Benefits & Funding)
PEOPLE &
Independent Adviser
RESOURCES
Implementation
Clwyd Pension Fund Committee
The Pension Fund Committee's principal aim is to carry out the functions of Flintshire County
Council as the Scheme Manager and Administering Authority for the Clwyd Pension Fund in
accordance with Local Government Pension Scheme legislation.
The members on the Clwyd Pension Fund Panel are not Trustees of the Fund, however, they do
have a duty of care which is analogous to the responsibilities of Trustees in the private sector and
they could be more accurately described as ‘Quasi Trustees’. The management of the Clwyd
Pension Fund is Non-Political.
The Committee's specific roles as outlined in the Council's Constitution are shown in Appendix B.
The Committee may also delegate a limited range of its functions to one or more officers of
Flintshire County Council.
No matters relating to Flintshire County Council's responsibilities as an employer participating within
the Clwyd Pension Fund are delegated to the Pension Fund Committee.
The Pension Fund Committee meets at least quarterly and is composed of nine members as
follows:
Five Councillors of Flintshire County Council, determined by the Council.
Four co-opted members comprising:-
One Councillor of Wrexham County Borough Council, determined by that Council.
One Councillor of Denbighshire County Council, determined by that Council.
One Representative of the other Scheme Employers (not admission bodies) in the Clwyd
Pension Fund as defined by Schedule 2 of the Local Government Pension Scheme 2013, as
amended from time to time, appointed in accordance with procedures agreed by the Head of
Finance in consultation with the members of the Pension Fund Advisory Panel.
One Representative of the scheme members of the Clwyd Pension Fund, appointed in
accordance with procedures agreed by the Head of Finance in consultation with the members
of the Pension Fund Advisory Panel.
The Council's Constitution permits named substitutes for Flintshire County Council members only,
providing they satisfy the knowledge and skills policy of the pension fund. The terms of reference
for the members range from four to six years, and members may be reappointed for further terms.
All members have equal voting rights.
75
Chief Officer, People and Resources Under the Council's Constitution, the Chief Officer, People and Resources is responsible for the
following matters:
The day to day management of Clwyd Pension Fund matters including ensuring arrangements
for investment of assets and administration of contributions and benefits, excluding matters
delegated to the Pensions Fund Committee.
Establish and Chair a Clwyd Pension Fund Advisory Panel consisting of officers of the Council
and advisers to the Clwyd Pension Fund, to provide advice and propose recommendations to
the Pension Fund Committee, and to carry out such matters as delegated to it from time to
time by the Pension Fund Committee.
Section 151 Officer – Corporate Finance Manager
Under the Council's current operating model, the Chief Finance Officer (S151) role is designated to
the Corporate Finance Manager. The Corporate Finance manager therefore has a statutory
responsibility for the proper financial administration of the Clwyd Pension Fund, in addition to that
of Flintshire County Council.
Clwyd Pension Fund Advisory Panel
The Clwyd Pension Fund Advisory Panel has been established by the Chief Officer, People and
Resources to provide advice and propose recommendations to the Pension Fund Committee, and
to carry out such matters as delegated to it from time to time by the Pension Fund Committee.
Its membership consists of:
The Corporate Finance Manager of Flintshire County Council
The Chief Officer, People and Resources
The Clwyd Pension Fund Manager
Investment Consultant
Fund Actuary
Independent Adviser
Training
Flintshire County Council recognises that effective financial administration and decision making can
only be achieved where those involved have the requisite knowledge and skills. Accordingly, in
relation to the management of the Clwyd Pension Fund, we adopt the key recommendations of the
CIPFA Code of Practice on Public Sector Pensions Finance Knowledge and Skills.
This means we will ensure that we have formal and comprehensive objectives, policies and
practices, strategies and reporting arrangements for the effective acquisition and retention of the
relevant LGPS and related knowledge and skills for those responsible for financial administration
and decision-making relating to the Fund. These policies and practices will be guided by reference
to the framework of knowledge and skills defined within the CIPFA Pensions Finance Knowledge
and Skills Frameworks.
We will be developing the Fund's Training Policy later in 2014, albeit it already has an intensive
Training Plan in place.
We will report on an annual basis how well these policies have been adhered to throughout the
financial year as part of the Fund's Annual Report and Accounts.
The Council has delegated the responsibility for the implementation of the requirements of the
CIPFA Code of Practice to the Chief Officer, People and Resources, who will act in accordance with
the Fund's policy statement once it has been developed.
76
Monitoring Governance of the Clwyd Pension Fund
The Fund's governance objectives will be monitored as follows:
Objective
Monitoring Arrangements
Have robust governance arrangements in The Independent Adviser undertakes an annual
place, to facilitate informed decision making,
review of the effectiveness of the Clwyd Pension
supported by appropriate advice, policies and
Fund's governance arrangements, the findings
strategies.
of which are reported to the Committee and
published.
In line with the Regulations this document will be
filed with the DCLG.
Ensure the Pension Fund is managed and its A Training Policy in place together with annual
services delivered by people who have the
monitoring of all training by Pension Committee
appropriate knowledge and expertise
members and key officers.
Act with integrity and be accountable to our The employers within the Fund, together with
stakeholders for our decisions, ensuring they
union representatives, are invited to an Annual
are robust and well based
Joint Consultative Meeting. Attendees receive
presentations and have the opportunity to ask
questions on the governance of the Fund.
The Pension Fund Committee includes
representatives from scheme members and
most employers in the Fund.
Understand and monitor risk
A Risk Policy and register in place.
Ongoing consideration of key risks at Pension
Fund Committee meetings.
Strive
to
ensure
compliance
with
the The Governance of the Fund is considered by
appropriate legislation and statutory guidance
both the External and Internal Auditors. All
and to act in the spirit of other relevant
External and Internal Audit Reports are reported
guidelines and best practice guidance
to Committee.
The Fund has an Independent Adviser and their
annual report includes reference to compliance
with key requirements.
Clearly articulate our objectives and how we All strategies and policies include reference to
intend to achieve those objectives through
how objectives will be monitored.
business planning, and continually measure Ongoing monitoring against key objectives at
and monitor success
Pension Fund Committee meetings.
Ongoing monitoring of business plan targets at
Pension Fund Committee meetings.
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Key Risks
The key risks to the delivery of this Strategy are outlined below. The Pension Fund Committee
members, with the assistance of the Clwyd Pension Fund Advisory Panel, will monitor these and
other key risks and consider how to respond to them.
Changes in Pension Fund Committee membership and/or key officers resulting in loss of
continuity and potentially diminishing knowledge and understanding
Changes in government / legislative requirements meaning insufficient time allocated to
ongoing management, either at Pension Fund Committee meetings or as part of key officers'
duties
Ineffective delegation of duties and/or presentation of Pension Fund Committee items resulting
in insufficient time spent on key matters
Poor attendance and/or a lack of engagement at training and/or formal meetings by Committee
Members, Advisory Panel members and/or other key officers resulting in a poor standard of
decision making and/or monitoring
Conflicts of interest not being appropriately managed by Committee Members and/or key
officers.
Best Practice Compliance Statement
As required by Local Government Pension Scheme Regulations the statement below compares
Clwyd Pension Fund’s current governance arrangements with the best practice guidance issued by
the Secretary of State for Communities and Local Government. The statement provides an
explanation where the Fund is not fully compliant.
Approval, Review and Consultation
The governance structure of the Clwyd Pension Fund was reviewed in 2014. The employers of the
Fund were consulted prior to that review.
This Governance Policy and Statement was approved at the Clwyd Pension Fund Committee on 22
July 2014. It will be formally reviewed and updated at least every three years or sooner if the
governance arrangements or other matters included within it merit reconsideration.
Further Information
If you require further information about anything in or related to this Governance Policy and
Statement, please contact:
Philip Latham, Clwyd Pension Fund Manager, Flintshire County Council
E-mail - xxxxxx.xxxxxx@xxxxxxxxxx.xxx.xx
Telephone - 01352 702264
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Appendix A - Clwyd Pension Fund Governance Compliance Statement
Best Practice
Compliant or not?
Explanatory Note
A. STRUCTURE
a. The management of the administration of benefits and
COMPLIANT
The administration of benefits and strategic management of
strategic management of fund assets clearly rests with the
fund assets is delegated by the Council to Pension Fund
main committee established by the appointing council.
Committee.
b. That representatives of participating LGPS employers,
COMPLIANT
Representatives covering most employers and scheme
admitted bodies and scheme members (including pensioner
members are Co-opted Members of the Pension Fund
and deferred members) are members of either the main or
Committee.
secondary committee established to underpin the work of the
main committee.
c. That where a secondary committee or panel has been
NOT APPLICABLE established, the structure ensures effective communication
across both levels.
d. That where a secondary committee or panel has been
NOT APPLICABLE established, at least one seat on the main committee is
allocated for a member from the secondary committee or
panel.
B. REPRESENTATION
a. That all key stakeholders are afforded the opportunity to be
PARTIALLY
The Pension Fund Committee includes the following Co-opted
represented within the main or secondary committee
COMPLIANT
Members:
structure. These include:-
employer representatives covering all employers with the
i) employing authorities (including non-scheme employers,
exception of admission bodies (as admission bodies make
e.g. admitted bodies);
up just a small proportion of the liabilities of the Fund)
ii) scheme members (including deferred and pensioner
a scheme member representative covering all categories of
scheme members),
scheme member.
iii) where appropriate, independent professional observers,
In addition, an independent adviser attends all Pension Fund
and
Committee meetings and the Fund's actuary and investment
iv) expert advisors (on an ad-hoc basis).
consultant regularly attend meetings on an ad-hoc basis.
b. That where lay members sit on a main or secondary
COMPLIANT
All Pension Fund Committee members, including Co-opted
committee, they are treated equally in terms of access to
Members, are treated equally with full opportunity to contribute
papers and meetings, training and are given full opportunity
to the decision making process and with unrestricted access to
to contribute to the decision making process, with or without
papers and training, and with full voting rights.
voting rights.
C. SELECTION AND ROLE OF LAY MEMBERS
79
Best Practice
Compliant or not?
Explanatory Note
a. That committee or panel members are made fully aware of
COMPLIANT
This is highlighted via regular training and also when presenting
the status, role and function they are required to perform on
the Governance Strategy Statement for approval.
either a main or secondary committee.
b. That at the start of any meeting committee members are
COMPLIANT
This is no longer a legal requirement but we recognise that
invited to declare any financial or pecuniary interest related to
potential conflicts of interest can arise between existing roles
specific matters on the agenda.
(e.g. as employer representatives or scheme members) and
accordingly we still carry out this practice.
D. VOTING
a. The policy of individual administering authorities on voting
COMPLIANT
The Council's Constitution and the Fund's Governance
rights is clear and transparent, including the justification for
Strategy Statement make it clear that all Pension Fund
not extending voting rights to each body or group represented
Committee members have equal voting rights.
on main LGPS committees.
E. TRAINING / FACILITY TIME / EXPENSES
a. That in relation to the way in which statutory and related
COMPLIANT
Training is delivered through several avenues including:
decisions are taken by the administering authority, there is a
An initial induction for new Pension Fund Committee
clear policy on training, facility time and reimbursement of
Members
expenses in respect of members involved in the decision-
Ongoing training through written reports or presentations at
making process.
Committee meetings
Conferences and seminars.
The actual costs and expenses relating to approved training are
met directly or can be reimbursed from the Clwyd Pension
Fund. The Co-opted Members of the Pension Fund Committee
receive payments for attendance at meetings (including training
events) as detailed within the Flintshire County Council
Members' Remuneration Scheme.
b. That where such a policy exists, it applies equally to all
COMPLIANT
members of committees, sub-committees, advisory panels or
any other form of secondary forum.
c. That the administering authority considers the adoption of
COMPLIANT
A log of individual Member training is maintained. In addition,
annual training plans for committee members and maintains
the Fund has adopted the CIPFA Knowledge and Skills
a log of all such training undertaken.
Framework and is developing a Fund specific Training Policy.
F. MEETINGS (FREQUENCY/QUORUM)
80
Best Practice
Compliant or not?
Explanatory Note
a. That an administering authority’s main committee or
COMPLIANT
committees meet at least quarterly.
b. That an administering authority’s secondary committee or
NOT APPLICABLE panel meet at least twice a year and is synchronised with the
dates when the main committee sits.
c. That an administering authority who do not include lay
NOT APPLICABLE Even though we do have lay members on our Pension
members in their formal governance arrangements, must
Committee, we also have an Annual Joint Consultative Meeting
provide a forum outside of those arrangements by which the
(AJCM) for employing bodies and scheme members.
interests of key stakeholders can be represented
G. ACCESS
a. That subject to any rules in the council’s constitution, all
COMPLIANT
All Members of the Pension Fund Committee have equal
members of main and secondary committees or panels have
access to papers.
equal access to committee papers, documents and advice
that falls to be considered at meetings of the main committee.
H. SCOPE
a. That administering authorities have taken steps to bring
COMPLIANT
The remit of the Pension Fund Committee covers all Fund
wider scheme issues within the scope of their governance
matters, including administration, communications, funding,
arrangements
investments and governance.
I. PUBLICITY
a. That administering authorities have published details of
COMPLIANT
The Fund publishes a detailed Annual Report, newsletters for
their governance arrangements in such a way that
active and pensioner members, road shows, drop in sessions
stakeholders with an interest in the way in which the scheme
and an Annual Meeting for
is governed, can express an interest in wanting to be part of
Employers and representatives of stakeholders (AJCM). In
those arrangements.
addition all Pension Fund Committee reports are available to
view on the Flintshire County Council website (other than
exempt items).
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Appendix B – Delegated Roles and Functions of the Clwyd Pension Fund
Committee
The Pension Fund Committee will have the following specific roles and functions, taking account of
advice from the Chief Officer, People and Resources and the Fund's professional advisers:
a) Ensuring the Clwyd Pension Fund is managed and pension payments are made in compliance
with the extant Local Government Pension Scheme Regulations, Her Majesty’s Revenue &
Customs requirements for UK registered pension schemes and all other relevant statutory
provisions.
b) Ensuring robust risk management arrangements are in place.
c) Ensuring the Council operates with due regard and in the spirit of all relevant statutory and non-
statutory best practice guidance in relation to its management of the Clwyd Pension Fund.
d) Determining the Pension Fund’s aims and objectives, strategies, statutory compliance
statements, policies and procedures for the overall management of the Fund, including in relation
to the following areas:
i) Governance – approving the Fund's Governance Policy and Compliance Statement for the
Fund within the framework as determined by Flintshire County Council and making
recommendations to Flintshire County Council about any changes to that framework.
ii) Funding Strategy – approving the Fund's Funding Strategy Statement including ongoing
monitoring and management of the liabilities, ensuring appropriate funding plans are in place
for all employers in the Fund, overseeing the triennial valuation and interim valuations, and
working with the actuary in determining the appropriate level of employer contributions for
each employer.
iii) Investment strategy - approving the Fund's investment strategy, Statement of Investment
Principles and Myners Compliance Statement including setting investment targets and
ensuring these are aligned with the Fund's specific liability profile and risk appetite.
iv) Administration Strategy – approving the Fund's Administration Strategy determining how the
Council will the administer the Fund including collecting payments due, calculating and
paying benefits, gathering information from and providing information to scheme members
and employers.
v) Communications Strategy – approving the Fund's Communication Strategy, determining the
methods of communications with the various stakeholders including scheme members and
employers.
vi) Discretions – determining how the various administering authority discretions are operated
for the Fund.
e) Monitoring the implementation of these policies and strategies on an ongoing basis.
f) Considering the Fund's financial statements prior to approval by the Council and agreeing the
Fund’s annual report.
82
g) Selection, appointment and dismissal of the Fund’s advisers, including actuary, benefits
consultants, investment consultants, global custodian, fund managers, lawyers, pension funds
administrator, and independent professional advisers.
h) Making decisions relating to employers joining and leaving the Fund. This includes which
employers are entitled to join the Fund, any requirements relating to their entry, ongoing
monitoring and the basis for leaving the Fund.
i) Agreeing the terms and payment of bulk transfers into and out of the Fund.
j) Agreeing Pension Fund business plans and monitoring progress against them.
k) Agreeing the Fund's Knowledge and Skills Policy for all Pension Fund Committee members and
for all officers of the Fund, including determining the Fund’s knowledge and skills framework,
identifying training requirements, developing training plans and monitoring compliance with the
policy.
l) Agreeing the Administering Authority responses to consultations on LGPS matters and other
matters where they may impact on the Fund or its stakeholders.
m) Receiving ongoing reports from the Chief Officer, People and Resources and Pensions Advisory
Panel in relation to delegated functions.
83
Clwyd Pension Fund (CPF)
2013 Funding Strategy Statement (FSS)
This Statement has been prepared by Flintshire County Council (the Administering Authority) to set
out the funding strategy for the Clwyd Pension Fund (the CPF), in accordance with Regulation 35
of the Local Government Pension Scheme (Administration) Regulations 2008 (as amended) and the
guidance paper issued by the Chartered Institute of Public Finance and Accountancy (CIPFA)
Pensions Panel.
1.
INTRODUCTION
The Local Government Pension Scheme (Administration) Regulations 2008 (as amended) (“the
Administration Regulations”) provide the statutory framework from which the Administering Authority
is required to prepare a FSS. The key requirements for preparing the FSS can be summarised as
follows:
After consultation with all relevant interested parties involved with the Fund, the Administering
Authority will prepare and publish their funding strategy.
In preparing the FSS, the Administering Authority must have regard to :-
the guidance issued by CIPFA for this purpose; and
the Statement of Investment Principles (SIP) for the CPF published under Regulation
12 of the Local Government Pension Scheme (Management and Investment of Funds)
Regulations 2009 (as amended);
The FSS must be revised and published whenever there is a material change in either the
policy on the matters set out in the FSS or the Statement of Investment Principles.
Benefits payable under the CPF are guaranteed by statute and thereby the pensions promise is
secure. The FSS addresses the issue of managing the need to fund those benefits over the long
term, whilst at the same time, facilitating scrutiny and accountability through improved transparency
and disclosure.
The Scheme is a defined benefit arrangement with principally final salary related benefits from
contributing members up to 1 April 2014 and Career Averaged Revalued Earnings (“CARE”) benefits
earned thereafter. There is also the introduction of a “50:50 Scheme Option”, where members can
elect to accrue 50% of the full scheme benefits and pay 50% of the normal member contribution.
The benefits provided by the CPF are specified in the governing legislation (the Local Government
Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 (as amended) (“the
BMC Regulations”) and the Administration Regulations referred to above. New legislation contained
in the Local Government Pension Scheme Regulations 2013 (“the 2013 Regulations”) governs the
CPF from 1 April 2014. The required levels of employee contributions from 1 April 2014 are also
specified in the 2013 Regulations.
Employer contributions are determined in accordance with the Administration Regulations which
require that an actuarial valuation is completed every three years by the actuary, including a rates
and adjustments certificate. Contributions to the CPF should be set so as to “secure its solvency”,
whilst the actuary must also have regard to the desirability of maintaining as nearly constant a rate
of contribution as possible. The actuary must have regard to the FSS in carrying out the valuation.
84
2.
PURPOSE OF THE FSS IN POLICY TERMS
Funding is the making of advance provision to meet the cost of accruing benefit promises. Decisions
taken regarding the approach to funding will therefore determine the rate or pace at which this
advance provision is made. Although the Regulations specify the fundamental principles on which
funding contributions should be assessed, implementation of the funding strategy is the
responsibility of the Administering Authority, acting on the professional advice provided by the
actuary.
The purpose of this Funding Strategy Statement is:
to establish a clear and transparent fund-specific strategy which will identify how employers'
pension liabilities are best met going forward;
to support the regulatory requirement to maintain as nearly constant employer contribution
rates as possible; and
to take a prudent longer-term view of funding those liabilities.
The intention is for this strategy to be both cohesive and comprehensive for the CPF as a whole,
recognising that there will be conflicting objectives which need to be balanced and reconciled. Whilst
the position of individual employers must be reflected in the statement, it must remain a single
strategy for the Administering Authority to implement and maintain.
3.
AIMS AND PURPOSE OF THE CPF
The aims of the Fund are to:
enable employer contribution rates to be kept as nearly constant as possible and at
reasonable cost to the taxpayers, scheduled, resolution and admitted bodies
manage employers’ liabilities effectively
ensure that sufficient resources are available to meet all liabilities as they fall due, and
maximise the returns from investments within reasonable risk parameters.
The purpose of the Fund is to:
receive monies in respect of contributions, transfer values and investment income,
and pay out monies in respect of scheme benefits, transfer values, costs, charges and
expenses as defined in the Local Government Pension Scheme (Administration) Regulations
2008 (as amended), the Local Government Pension Scheme (Benefits, Membership and
Contributions) Regulations 2007 (as amended), the 2013 Regulations and in the Local
Government Pension Scheme (Management and Investment of Funds) Regulations 2009.
4.
RESPONSIBILITIES OF THE KEY PARTIES
The Administering Authority should:
collect employer and employee contributions
invest surplus monies in accordance with the Regulations
ensure that cash is available to meet liabilities as and when they fall due
manage the valuation process in consultation with the CPF’s actuary
prepare and maintain an FSS and a SIP, both after due consultation with interested parties,
and
85
monitor all aspects of the CPF’s performance and funding and amend FSS/SIP.
The Individual Employer should:
deduct contributions from employees’ pay correctly after determining the appropriate
employee contribution rate (in accordance with the Regulations)
pay all contributions, including their own as determined by the actuary, promptly by the due
date
exercise discretions within the regulatory framework
make additional contributions in accordance with agreed arrangements in respect of, for
example, augmentation of scheme benefits, early retirement strain, and
notify the Administering Authority promptly of all changes to membership or, as may be
proposed, which affect future funding.
The Fund actuary should:
prepare valuations including the setting of employers’ contribution rates after agreeing
assumptions with the Administering Authority and having regard to the FSS
prepare advice and calculations in connection with bulk transfers and individual benefit-
related matters,
advise on funding strategy, the preparation of the FSS, and the inter-relationship between
the FSS and the SIP.
5.
SOLVENCY ISSUES AND TARGET FUNDING LEVELS
Funding Objective
To meet the requirements of the Administration Regulations the Administering Authority’s long term
funding objective is for the Fund to achieve and then maintain sufficient assets to cover 100% of
projected accrued liabilities (the “
funding target”) assessed on an ongoing past service basis
including allowance for projected final pay. In the long term, the employer rate would ultimately revert
to the Future Service Rate.
Determination of the Funding Target and Recovery Period
The principal method and assumptions to be used in the calculation of the
funding target are set out
in Appendix 1.
Underlying these assumptions are the following two tenets:
that the Scheme is expected to continue for the foreseeable future; and
favourable investment performance can play a valuable role in achieving adequate funding
over the longer term.
This allows us to take a longer term view when assessing the contribution requirements for certain
employers. As part of this valuation when looking to potentially stabilise contribution requirements
we will consider whether we can build into the funding plan the following:-
some allowance for interest rates and bond yields to revert to higher levels over the medium
to long term; and
whether some allowance for increased investment return can be built into the funding plan
over the agreed recovery period.
In considering this the Administering Authority, based on the advice of the Actuary, will consider if
this results in a reasonable likelihood that the funding plan will be successful.
86
As part of each valuation separate employer contribution rates are assessed by the actuary for each
participating employer or group of employers. These rates are assessed taking into account the
experience and circumstances of each employer, following a principle of no cross-subsidy between
the distinct employers in the Scheme. In attributing the overall investment performance obtained on
the assets of the Scheme to each employer a pro-rata principle is adopted. This approach is
effectively one of applying a notional individual employer investment strategy identical to that
adopted for the Scheme as a whole.
The Administering Authority, following consultation with the participating employers, has adopted
the following objectives for setting the individual employer contribution rates arising from the 2013
actuarial valuation:
In the current circumstances, as a general rule, the Fund does not believe it appropriate for
deficit contribution reductions to apply compared to the 2010 funding plan where substantial
deficits remain.
In addition, a maximum deficit recovery period of 20 years will apply. Employers will have the
freedom to adopt a recovery plan on the basis of a shorter period if they so wish. A shorter
period may be applied in respect of particular employers where the Administering Authority
considers this to be warranted (see Deficit Recovery Plan below).
For any employers assessed to be in surplus, their individual contribution requirements will be
adjusted to such an extent that any surplus is used (ie run-off) over a 20 year period (if
surpluses are sufficiently large, contribution requirements will be set to a minimum nil total
amount). The current level of contributions will be phased down as appropriate.
The employer contributions will be expressed and certified as two separate elements:
a percentage of pensionable payroll in respect of the future accrual of benefit
a schedule of lump sum amounts over 2014/17 in respect of the past service deficit subject
to the review from April 2017 based on the results of the 2016 actuarial valuation.
Where increases in employer contributions are required from 1 April 2014, following completion
of the 2013 actuarial valuation, the increase from the rates of contribution payable in the year
2013/14 may be implemented in steps, over a maximum period of [3] years.
On the cessation of an employer’s participation in the Scheme, the actuary will be asked to
make a termination assessment. Any deficit in the Scheme in respect of the employer will be
due to the Scheme as a termination contribution, unless it is agreed by the Administering
Authority and the other parties involved that the assets and liabilities relating to the employer
will transfer within the Scheme to another participating employer. The full termination policy is
set out in Appendix 3.
In determining the above objectives the Administering Authority has had regard to:
the responses made to the consultation with employers on the FSS principles
relevant guidance issued by the CIPFA Pensions Panel
the need to balance a desire to attain the target as soon as possible against the short-
term cash requirements which a shorter period would impose, and
the Administering Authority’s views on the strength of the participating employers’
covenants in achieving the objective.
Deficit Recovery Plan
If the assets of the scheme relating to an employer are less than the
funding target at the effective
date of any actuarial valuation, a recovery plan will be put in place, which requires additional
contributions from the employer to meet the shortfall.
87
Additional contributions will be expressed as annual monetary lump sums, subject to review based
on the results of each actuarial valuation.
In determining the actual recovery period to apply for any particular employer to employer grouping,
the Administering Authority may take into account some or all of the following factors:
the size of the funding shortfall;
the business plans of the employer;
the assessment of the financial covenant of the Employer; and the security of future
income streams
any contingent security available to the Fund or offered by the Employer such as
guarantor or bond arrangements, charge over assets, etc.
length of expected period of participation in the Fund.
In certain instances, and in particular for Fund employers which are considered by the Administering
Authority to provide a high level of financial covenant, an allowance may be made as part of the
Recovery Plan for investment performance at a higher level than that assumed for assessment of
the
funding target. It is envisaged that this option will only be afforded to eligible employers where
an increase in contributions is required (compared to the 2013/14 level of contribution) when
adopting the maximum 20 year recovery period. This higher level of return assumed will, in
particular reflect the actual investment strategy of the Fund, on the basis that this is to be maintained
over the entire recovery period. The assumptions to be used in these Recovery Plan calculations
are set out in Appendix 2.
It is acknowledged by the Administering Authority that, whilst posing a relatively low risk to the Fund
as a whole, a number of smaller employers may be faced with significant contribution increases that
could seriously affect their ability to function in the future. The Administering Authority therefore,
after specific agreement has been obtained by Fund Officers from the Clwyd Pension Fund Panel,
would be willing to use its discretion to negotiate an
evidence based affordable level of contributions
for the organisation for the three years 2014/17. Any application of this option is at the ultimate
discretion of the Administering Authority and will only be considered after the provision of the
appropriate evidence.
The Normal Cost of the Scheme (Future Service Contribution Rate)
In addition to any contributions required to rectify a shortfall of assets below the funding target,
contributions will be required to meet the cost of future accrual of benefits for members after the
valuation date (the “normal cost”). The method and assumptions for assessing these contributions
are also set out in Appendix 1.
6.
LINK TO INVESTMENT POLICY SET OUT IN THE STATEMENT OF INVESTMENT
PRINCIPLES (See Appendix 2)
The results of the 2013 valuation show the liabilities at 31 March 2013 to be [66]% covered by the
current assets, with the funding deficit of [34]% being covered by future deficit contributions.
In assessing the value of the CPF’s liabilities in the valuation, allowance has been made for asset
out-performance as described in Appendix 1, taking into account the investment strategy adopted
by the CPF, as set out in the SIP.
It is not possible to construct a portfolio of investments which produces a stream of income exactly
matching the expected liability outgo. However, it is possible to construct a portfolio which closely
matches the liabilities and represents the least risk investment position. Such a portfolio would
consist of a mixture of long-term index-linked and fixed interest gilts. Investment of the CPF’s assets
in line with the least risk portfolio would minimise fluctuations in the CPF’s ongoing funding level
between successive actuarial valuations.
88
Departure from a least risk investment strategy, in particular to include equity type investments,
gives the prospect that out-performance by the assets will, over time, reduce the contribution
requirements. The funding target might in practice therefore be achieved by a range of combinations
of funding plan, investment strategy and investment performance.
The current benchmark investment strategy, as set out in the SIP, is:
Asset Class (Summary)
%
Equities
43.0
Fixed Interest
15.0
Alternative Investments
42.0
TOTAL
100.0
Asset Class (Detailed)
%
Equities
Developed Passive
19.0
Global
10.0
PacRim equities
7.0
Emerging market equities
7.0
43.0
Fixed Interest
Unconstrained
15.0
15.0
Alternative Investments
Commodities
4.0
Asset Allocation
12.0
Private Equity
8.0
Property
7.0
Hedge Fund of Funds
5.0
Infrastructure
2.0
Timber/Agriculture
2.0
Free Allocation
2.0
42.0
TOTAL
100.0
The funding strategy adopted for the 2013 valuation is based on an assumed asset out-performance
of 1.4% per annum.
7.
IDENTIFICATION OF RISKS AND COUNTER MEASURES
The funding of defined benefits is by its nature uncertain. Funding of the CPF is based on both
financial and demographic assumptions. These assumptions are specified in the Appendices and
the actuarial valuation report. When actual experience is not in line with the assumptions adopted
a surplus or shortfall will emerge at the next actuarial assessment and will require a subsequent
contribution adjustment to bring the funding back into line with the target.
The Administering Authority has been advised by the actuary that the greatest risk to the CPF’s
funding is the investment risk inherent in the predominantly equity (or return seeking) based strategy,
so that actual asset out-performance between successive valuations could diverge significantly from
the overall out performance assumed in the long term.
89
What are the Risks?
Financial
Investment markets fail to perform in line with expectations
Market yields move at variance with assumptions
Investment Fund Managers fail to achieve performance targets over the longer term
Asset re-allocations in volatile markets may lock in past losses
Pay and price inflation significantly more or less than anticipated
Effect of possible increase in employer’s contribution rate on service delivery and
admitted/scheduled bodies
In the context of managing various aspects of the Fund’s risks, the Administering Authority has
embarked on a “Flightpath” risk management investment strategy. A Liability Driven Investments
(LDI) mandate of up to 15% of the Fund’s assets has recently been awarded.
The principle aim of this risk management strategy is to effectively control and limit interest and
inflation risks being run by the Fund (as these factors can lead to significant changes to liability
values). The overall funding flightpath strategy is to consider and structure the investment strategy
to determine a balance between return-seeking and risk-hedging assets. This approach will
continue to be developed over the coming months and further details will be included in the Fund’s
Statement of Investment Principles (SIP).
Demographic
Longevity horizon continues to expand
Deteriorating pattern of early retirements (including those granted on the grounds of ill health)
The level of take-up of the 50:50 option at a higher or lower level than built into the actuarial
assumptions.
Insurance of certain benefits
The contributions for any employer may be varied as agreed by the Actuary and Administering
Authority to reflect any changes in contribution requirements as a result of any benefit costs being
insured with a third party or internally within the Fund.
Regulatory
Further changes to Regulations, e.g. more favourable benefits package, potential new entrants
to scheme, e.g. part-time employees
Changes to national pension requirements and/or HMRC rules
Governance
Administering Authority unaware of structural changes in employer’s membership (e.g. large
fall in employee numbers, large number of retirements)
Administering Authority not advised of an employer closing to new entrants
An employer ceasing to exist with insufficient funding or adequacy of a bond.
Changes in Panel membership.
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8.
MONITORING AND REVIEW
The Administering Authority has taken advice from the actuary in preparing this Statement, and has
also consulted with employing organisations.
A full review of this Statement will occur no less frequently than every three years, to coincide with
completion of a full actuarial valuation. Any review will take account of then current economic
conditions and will also reflect any legislative changes.
The Administering Authority will monitor the progress of the funding strategy between full actuarial
valuations. If considered appropriate, the funding strategy will be reviewed (other than as part of
the triennial valuation process), for example:
if there has been a significant change in market conditions, and/or deviation in the progress of
the funding strategy
if there have been significant changes to the CPF membership, or LGPS benefits
if there have been changes to the circumstances of any of the employing authorities to such
an extent that they impact on or warrant a change in the funding strategy e.g. closure to new
entrants
if there have been any significant special contributions paid into the CPF
Kerry Feather
Head of Finance (Administrator & Treasurer to the Fund)
Flintshire County Council as lead authority for the Clwyd Pension Fund
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APPENDIX 1
ACTUARIAL VALUATION AS AT 31 MARCH 2013
Method and assumptions used in calculating the funding target
Method
The actuarial method to be used in the calculation of the funding target is the Projected Unit method,
under which the salary increases assumed for each member are projected until that member is
assumed to leave active service by death, retirement or withdrawal from service. This method
implicitly allows for new entrants to the scheme on the basis that the overall age profile of the active
membership will remain stable. As a result, for those employers which are closed to new entrants,
an alternative method is adopted (the Attained Age method), which makes advance allowance for
the anticipated future ageing and decline of the current closed membership group.
Financial assumptions
Investment return (discount rate)
A yield based on market returns on UK Government gilt stocks and other instruments which reflects
a market consistent discount rate for the profile and duration of the Scheme’s accrued liabilities,
plus an Asset Out-performance Assumption (“AOA”) 1.4% per annum.
The asset out-performance assumptions represent the allowance made, in calculating the funding
target, for the long term additional investment performance on the assets of the Fund relative to the
yields available on long dated gilt stocks as at the valuation date.
Inflation (Consumer Prices Index)
The inflation assumption will be taken to be the investment market’s expectation for RPI inflation as
indicated by the difference between yields derived from market instruments, principally conventional
and index-linked UK Government gilts as at the valuation date, reflecting the profile and duration of
the Scheme’s accrued liabilities, but subject to the following two adjustments:
an allowance for supply/demand distortions in the bond market is incorporated, and
due to retirement pensions being increased annually by the change in the Consumer Price
Index rather than the Retail Price Index, The overall reduction to RPI inflation at the valuation
date is [1.0]% per annum.
Salary increases
The assumption for real salary increases (salary increases in excess of price inflation) will be
determined by an allowance of 1.5% p.a. over the inflation assumption as described above. This
includes allowance for promotional increases. In addition to the long term salary increase
assumption allowance has been made for expected short term pay restraint for major employers as
budgeted in their financial plan. This results in a total salary increase of 1% per annum for 3 years.
Pension increases/Indexation of CARE benefits
Increases to pensions are assumed to be in line with the inflation (CPI) assumption described above.
This is modified appropriately to reflect any benefits which are not fully indexed in line with the RPI
(e.g. Guaranteed Minimum Pensions in respect of service prior to April 1997).
Demographic assumptions
Mortality
The mortality in retirement assumptions will be based on the most up-to-date information in relation
to self-administered pension schemes published by the Continuous Mortality Investigation (CMI),
making allowance for future improvements in longevity and the experience of the scheme. The
mortality tables used are set out below, with a loading reflecting CPF specific experience. The
derivation of the mortality assumption is set out in a separate paper as supplied by the Actuary.
92
Current members who retire on the grounds of ill health are assumed to exhibit average mortality
equivalent to that for a good health retiree at an age 4 years older whereas for existing ill health
retirees we assume this is at an age 3 years older. For all members, it is assumed that the
accelerated trend in longevity seen in recent years will continue in the longer term and as such, the
assumptions build in a minimum level of longevity ‘improvement’ year on year in the future in line
with the CMI projections subject to a minimum rate of improvement of 1.5% per annum.
The mortality before retirement has also been adjusted based on LGPS wide experience.
Commutation
It has been assumed that, on average, 50% of retiring members will take the maximum tax-free cash
available at retirement and 50% will take the standard 3/80ths cash sum. The option which members
have to commute part of their pension at retirement in return for a lump sum is a rate of £12 cash
for each £1 p.a. of pension given up.
Other Demographics
Following an analysis of Fund experience carried out by the Actuary, the incidence of retirement in
normal health and in ill health and the proportions married/civil partnership assumption have been
modified from the last valuation. In addition, allowing for take-up of the 50:50 option will be made
up to a maximum of 5% of current and future members for certain employers (who have sufficient
size of current contributing members). Other assumptions are as per the last valuation.
Expenses
Expenses are met out the Fund, in accordance with the Regulations. This is allowed for by adding
0.5% of pensionable pay to the contributions as required from participating employers. This addition
is reassessed at each valuation. Investment expenses have been allowed for implicitly in
determining the discount rates.
Discretionary Benefits
The costs of any discretion exercised by an employer in order to enhance benefits for a member
through the Fund will be subject to additional contributions from the employer as required by the
Regulations as and when the event occurs. As a result, no allowance for such discretionary benefits
has been made in the valuation.
Method and assumptions used in calculating the cost of future accrual
The cost of future accrual (normal cost) will be calculated using the same actuarial method and
assumptions as used to calculate the funding target except that the financial assumptions adopted
will be as described below.
The financial assumptions for assessing the future service contribution rate should take account of
the following points:
contributions will be invested in market conditions applying at future dates, which are
unknown at the effective date of the valuation, and which are not directly linked to market
conditions at the valuation date; and
the future service liabilities for which these contributions will be paid have a longer average
duration than the past service liabilities
The financial assumptions in relation to future service (i.e. the normal cost) are not specifically linked
to investment conditions as at the valuation date itself, and are based on an overall assumed real
return (i.e. return in excess of price inflation) of 3.0% per annum, with a long term average
assumption for consumer price inflation of 2.6% per annum. These two assumptions give rise to an
overall discount rate of 5.6% p.a. (i.e. 3.0% plus 2.6%).
Adopting this approach the future service rate is not subject to variation solely due to different market
conditions applying at each successive valuation, which reflects the requirement in the Regulations
for stability in the “Common Rate” of contributions. In market conditions at the effective date of the
93
2013 valuation this approach gives rise to a slightly more optimistic stance (i.e. allows for a higher
AOA) in relation to the cost of accrual of future benefits compared to the market related basis used
for the assessment of the funding target.
At each valuation the cost of the benefits accrued since the previous valuation will become a past
service liability. At that time any mismatch against gilt yields and the asset out-performance
assumptions used for the funding target is fully taken into account in assessing the funding position.
Summary of key whole Fund assumptions used for calculating funding target and cost of
future accrual (the “normal cost”) for the 2013 actuarial valuation
Long-term gilt yields
Fixed interest
3.2% p.a.
Index linked
-0.4% p.a.
Past service Funding Target financial assumptions
Investment return/Discount Rate
4.6% p.a.
CPI price inflation
2.6% p.a.
Long Term Salary increases
4.1% p.a.
Pension increases/indexation of CARE benefits
2.6% p.a.
Future service accrual financial assumptions
Investment return
5.6% p.a.
CPI price inflation
2.6% p.a.
Long Term Salary increases
4.1% p.a.
Pension increases/indexation of CARE benefits
2.6% p.a.
Demographic assumptions
The post retirement mortality tables adopted for this valuation are as follows:
Other demographic assumptions are noted below:
Withdrawal
As for 2010 valuation
Other demographics
Based on LG scheme specific experience.
50:50 Option
Up to 5% take-up for certain employers
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APPENDIX 2
Assumptions used in calculating contributions payable under the recovery plan
The contributions payable under the recovery plan are calculated using the same assumptions as
those used to calculate the funding target, with the exception that, for certain employers which are
considered by the Administering Authority to provide a high level of financial covenant and are
required to increase contributions (compared to 2013/14 levels) when adopting the maximum
recovery period of 20 years, an allowance may be made as part of the recovery plan for investment
performance at a higher level than that assumed for assessment of the
funding target. Therefore
the required contributions are adjusted to allow for the following variation in assumptions during the
period of the recovery plan:
Investment return on existing assets and future contributions
A maximum overall return effective as at the valuation date of 6.0% p.a. (i.e. a return of 2.8% p.a. in
excess of gilts) reflecting the underlying investment strategy of the scheme and, in particular,
including the assets of the scheme that underlie the pensioner as well as the non-pensioner
liabilities.
The investment return assumed for the contributions under the recovery plan is taken to apply
throughout the recovery period. As a result, any change in investment strategy which would act to
reduce the expected future investment returns could invalidate these assumptions and therefore the
funding strategy.
As indicated above, this variation to the assumptions in relation to the recovery plan can only be
applied for those employers which the Administering Authority deems to be of sufficiently high
financial covenant to support the anticipation of investment returns, based on the current investment
strategy, over the entire duration of the recovery period. No such variation in the assumptions will
apply in any case to any employer which does not have a funding deficit at the valuation (and
therefore for which no recovery plan is applicable). Where a funding deficit exists the additional
return over and above that built into the funding target
assumptions will be limited so that the total
employer contributions emerging from the valuation will be no less that the current level of
contributions payable by the employer or the Future Service Contribution Rate.
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Appendix 3
Clwyd Pension Fund
Policy on Termination Funding for Employers (“Termination Policy”)
1. Introduction
1.1. This document details the Clwyd Pension Fund’s (CPF) policy on the methodology for assessment
of ongoing contribution requirements and termination payments in the event of the cessation of an
employer’s participation in the Fund. This document also covers CPF’s policy on admissions into
the Fund and sets out the considerations for current and former
admission bodies. It supplements
the general policy of the Fund as set out in the Funding Strategy Statement (FSS).
1.2.
Admission bodies are required to have an “
admission agreement” with the Fund. In conjunction with
the Regulations, the
admission agreement sets out the conditions of participation of the
admission
body including which employees (or categories of employees) are eligible to be members of the
Fund.
1.3.
Scheme Employers have a statutory right to participate in the LGPS and their staff therefore can
become members of the LGPS at any time, although some organisations (
Part 2 Scheme Employers)
do need to designate eligibility for its staff.
1.4. A list of all current
employing bodies participating in the CPF is kept as a live document and will be
updated by the
Administering Authority as bodies are admitted to, or leave the CPF.
1.5. Please see the glossary for an explanation of the terms used (in italics) throughout this Appendix.
2. Principles
Termination of an employer’s participation
2.1. When an
employing body terminates for any reason, employees may transfer to another employer,
either within the Fund or elsewhere. If this is not the case the employees will retain pension rights
within the Fund i.e. either deferred benefits or immediate retirement benefits.
2.2. In addition to any liabilities for current employees the Fund will also retain liability for payment of
benefits to former employees, i.e. to existing deferred and pensioner members except where there
is a complete transfer of responsibility to another Fund with a different
Administering Authority.
2.3. In the event that unfunded liabilities arise that cannot be recovered from the
employing body, these
will normally fall to be met by the Fund as a whole (i.e. all employers) unless there is a guarantor or
successor body within the Fund.
2.4. The CPF’s policy is that a termination assessment will be made based on
a least risk funding basis,
unless the
employing body has a guarantor within the Fund or a successor body exists to take over
the
employing body’s liabilities (including those for former employees). This is to protect the other
employers in the Fund as, at termination, the
employing body’s liabilities will become
orphan liabilities within the Fund, and there will be no recourse to it if a shortfall emerges in the future (after
participation has terminated).
2.5. If, instead, the
employing body has a guarantor within the Fund or a successor body exists to take
over the
employing body’s liabilities, the CPF’s policy is that the
valuation funding basis will be used
for the termination assessment unless the guarantor informs the CPF otherwise. The guarantor or
successor body will then, following any termination payment made, subsume the assets and liabilities
of the
employing body within the Fund. (For
Admission Bodies, this process is sometimes known as
the “novation” of the admission agreement.) This may, if agreed by the successor body, constitute a
complete amalgamation of assets and liabilities to the successor body, including any funding deficit
96
on closure. In these circumstances no termination payment will be required from the outgoing
employing body itself, as the deficit would be recovered via the successor body’s own deficit recovery
plan.
2.6. It is possible under certain circumstances that an employer can apply to transfer all assets and
current and former members’ benefits to another LGPS Fund in England and Wales. In these cases
no termination assessment is required as there will no longer be any
orphan liabilities in the CPF.
Therefore, a separate assessment of the assets to be transferred will be required.
Funding basis
2.7. An
employing body may choose to pre-fund for termination i.e. to amend their funding approach to a
least risk methodology and assumptions. This will substantially reduce the risk of an uncertain and
potentially large debt being due to the Fund at termination. However, it is also likely to give rise to a
substantial increase in contribution requirements, when assessed on the least risk basis.
2.8. For any
employing bodies funding on such a
least risk strategy a notional investment strategy will be
assumed as a match to the liabilities. In particular the
employing body’s notional asset share of the
Fund will be credited with an investment return in line with the
least risk funding assumptions adopted
rather than the actual investment return generated by the actual asset portfolio of the entire Fund.
The Fund reserves the right to modify this approach in any case where it might materially affect the
finances of the Scheme, or depending on any case specific circumstances.
Administering Authority options relating to Admission Bodies
2.9. Prior to admission to the Fund, an
Admission Body is required to carry out an assessment of the
level of risk on premature termination of the contract to the satisfaction of the
Administering Authority.
If the risk assessment and/or bond amount is not to the satisfaction of the
Administering Authority (as required under the LGPS Regulations) it will consider and determine whether
admission body must pre-fund for termination with contribution requirements assessed using the least risk
methodology and assumptions.
2.10. Some aspects that the
Administering Authority may consider when deciding whether to apply a
least risk methodology are:
Uncertainty over the security of the organisation’s funding sources e.g. the
admission body relies
on voluntary or charitable sources of income or has no external funding guarantee/reserves;
If the
admission body has an expected limited lifespan of participation in the Fund;
The average age of employees to be admitted and whether the admission is closed to new
joiners.
2.11. In order to protect other Fund employers, where it has been considered undesirable to provide a
bond, a guarantee must be sought in line with the LGPS Regulations.
3. Implementation
New admissions (admitted after 1 April 2014)
3.1. With effect from 1 April 2014 the CPF will apply the above principles to the admission of new bodies
into the Fund and to the methodology for assessment of a termination payment on the cessation of
such an
admission body’s participation in the CPF.
Transferee admission bodies (TABs)
3.2.
Transferee admission bodies are a category of
admission body that generally will have a guarantor
in the Fund. This is due to the Regulations requiring that, in the event of any unfunded liabilities on
the termination of the admission, the contribution rate for the relevant
Scheme Employer should be
revised. Accordingly, in general, the least risk approach to funding and termination will not apply for
TABs.
97
3.3. Any risk sharing arrangements agreed between the
Scheme Employer and the TAB will be
documented in the commercial agreement between the two parties and not the admission
agreement.
3.4. On termination of a TAB admission, any
orphan liabilities in the Fund will be subsumed by the
relevant
Scheme Employer.
3.5. The
Admission Body is required to carry out an assessment of the level of risk on premature
termination of the contract to the satisfaction of the
Administering Authority. This assessment would
normally be based on advice in the form of a “risk assessment report” provided by the actuary to the
CPF. As the
Scheme Employer is effectively the ultimate guarantor for these admissions to the CPF
it must also be satisfied (along with the
Administering Authority) over the level (if any) of any bond
requirement.
3.6. In the absence of any other specific agreement between the parties, deficit recovery periods for TABs
wil be set in line with the Fund’s general policy as set out in the FSS.
3.7. An exception to the above policy applies if the guarantor is not a participating employer within the
CPF, including if the guarantor is a participating employer within another LGPS Fund. In order to
protect other employers within the CPF the
Administering Authority may in this case treat the
admission body in accordance with paragraph 2.9.
Community admission bodies (CABs)
3.8. Historically, there was no requirement to carry out an assessment of the level of risk on termination
of the admission agreement for a CAB until changes were made to the Regulations via the
Miscellaneous Regulations 2012. For bodies admitted under previous legislation, despite no
requirement to do so the
Administering Authority may nevertheless have decided to carry out such a
risk assessment where appropriate. As noted in 3.5, all
Admission Bodies are now required to carry
out an assessment of the level of risk on premature termination of the contract to the satisfaction of
the
Administering Authority.
3.9. The CPF’s policy is to consider applications on a case-by-case basis, in line with the principles set
out above. In general, if any risk assessment or determination of a bond amount is not to the
satisfaction of the
Administering Authority, or if a guarantor (of sufficient standing acceptable to the
Administering Authority) is not forthcoming, the
admission body will be required to pre-fund for
termination with contribution requirements assessed using a least risk methodology and assumptions
as set out in 2.9. Where bond agreements are to the satisfaction of the
Administering Authority, the
level of the bond amount will be subject to review on a regular basis.
3.10. Deficit recovery periods will be determined consistent with the policy set out in the FSS.
Alternatively, the
Administering Authority may determine an employer specific deficit recovery
period will apply.
Future Terminations
3.11. In many cases, termination of an employer’s participation is an event that can be foreseen, for
example, because the organisation’s operations may be planned to be discontinued and/or the
admission agreement is due to cease. Under the Regulations, in the event of the
Administering
Authority becoming aware of such circumstances, it can amend an employer’s minimum
contributions such that the value of the assets of the
employing body is neither materially more nor
materially less than its anticipated liabilities at the date it appears to the
Administering Authority that it will cease to be a participating employer. In this case,
employing bodies are encouraged to
open a dialogue with the Fund to commence planning for the termination as early as possible.
Where termination is disclosed in advance the Fund will operate procedures to reduce the sizeable
volatility risks to the debt amount in the run up to actual termination of participation. The Fund will
modify the
employing body’s approach in any case, where it might materially affect the finances of
the Scheme, or depending on any case specific circumstances.
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Least Risk Termination basis
3.12. The least risk financial assumptions that applied at the actuarial valuation date (31 March 2013)
are set out below in relation to any liability remaining in the Fund. These will be updated on a case-
by-case basis, with reference to prevailing market conditions at the relevant
employing body’s cessation date.
Least risk assumptions
31 March 2013
Discount Rate
3.2% p.a.
CPI price inflation
2.9% p.a.
Pension increases/indexation of CARE benefits
2.9% p.a.
All demographic assumptions will be the same as those adopted for the 2013 actuarial
valuation, unless modified otherwise.
Glossary
Admission bodies: A specific type of employer under the Local Government Pension Scheme
(LGPS) who do not automatically qualify for participation in the Fund but are allowed to join if they
satisfy the relevant criteria set out in the Regulations.
Community admission bodies: A subset of, and the traditional type of
admission bodies – bodies
who operate in and/or are connected to local government. They also include
admission bodies that
are not associated to local government, as follows:
-
Bodies which provide a public service in the UK otherwise than for the purposes of gain and
which have sufficient links with a
Scheme Employer to be regarded as having a community
of interest.
-
Bodies which provide a public service in the UK otherwise than for the purposes of gain and
which are approved by the Secretary of State to be admitted to the LGPS. Approval may be
subject to such conditions as the Secretary of State thinks fit and he may withdraw approval
at any time if such conditions are not met.
-
Bodies to which any
Scheme Employer provides funding. Where at the date that the
admission agreement is made with such a body the total contribution from any one or more
Scheme Employers to its contribution income equals 50% or less of the funding contributed
by third parties it must be a term of the admission agreement that the
Scheme Employer who
provides funding (and, if more than one, all of them) guarantees the liability of the
admission
body to pay all amounts due from it under the LGPS Regulations.
Employing bodies: any organisation that participates in the LGPS, including
admission bodies and
scheme employers.
Valuation funding basis: the financial and demographic assumptions used to determine the
employer’s contribution requirements. The relevant discount rate used for valuing the present value
of liabilities is consistent with an expected rate of return of the Fund’s investments. This includes
an expected out-performance over gilts in the long-term from other asset classes, held by the Fund.
Least risk funding basis: more cautious funding basis than the existing valuation basis. The relevant
discount rate used for valuing the present value of liabilities is consistent with that used under the
most recent valuation but removing the allowance for asset out-performance.
Orphan liabilities: liabilities in the CPF for which there is no sponsoring employer within the Fund.
Ultimately orphan liabilities must be underwritten by all other employers in the Fund.
99
Part 2 Scheme Employers: employers that have the statutory right to participate in the LGPS,
although these bodies (set out in Part 2 of Schedule 2 of the Administration Regulations) would need
to designate an employee, or a class of employees to which he/she belonged, as being eligible for
membership of the LGPS.
Scheme Employers: employers that have the statutory right to participate in the LGPS. These
organisations (set out in Part 1 of Schedule 2 of the Administration Regulations) would not need to
designate eligibility, unlike the Part 2
Scheme Employers.
Administering Authority: Flintshire County Council, as the lead authority of the CPF, responsible for
all aspects of its management and operation.
Transferee admission bodies: A subset of
admission bodies and participates in the Fund for
employees involved with delivery of a specific function or service for a
Scheme Employer. An
example is where a local authority outsources a specific service (e.g. waste management) to a
private sector employer. In these cases the relevant
Scheme Employer would be a party to the
admission agreement, as well as the
admission body itself and the
administering authority.
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STATEMENT OF INVESTMENT PRINCIPLES
EXECUTIVE SUMMARY
1.
The Clwyd Pension Fund adopted as best practice from April 1997 the production, publication
and regular review of a Statement of Investment Principles (SIP). The Fund continued this
practice in response to the Local Government Pension Scheme (Management and
Investment)(Amendment) Regulations 1999, which required the formal publication of a SIP.
This SIP now complies with Local Government Pension Scheme (Management and
Investment)(Amendment) Regulations 2009, including a statement on compliance with the
Myner’s Principles, the Stewardship Code and a Sustainability Policy.
2.
Flintshire County Council reviewed its Governance arrangements for the Clwyd Pension
Fund in 2014. Prior to this date, the responsibility for the Clwyd Pension Fund rested with the
Head of Finance who reported to the Clwyd Pension Fund Panel made up of elected
members from Flintshire County Council, Denbighshire County Council and Wrexham County
Borough Council. In addition the panel had non-voting members including an independent
adviser and a scheme member representative.
3.
As a result, in May 2014, the Fund's governance arrangements were reviewed and the
Council established a formal Pension Fund Committee, supported by a Pension Fund
Advisory Panel. The Corporate Finance Manager is the Section 151 Officer has a statutory
responsibility for the proper financial affairs of Flintshire County Council which including
Clwyd Pension Fund matters. In addition, the Council has delegated specific
responsibilities to the Chief Officer (People and Resources). It is expected that this
governance structure will be expanded later in 2014 or early 2015 as a result of the
requirement by the Public Service Pensions Act 2013 to introduce a local pension board to
assist in compliance of pension fund matters. The Pension Fund Committee meets at
least quarterly and is composed of nine members as follows:
Five Councillors of Flintshire County Council, determined by the Council.
Four co-opted members comprising:-
One Councillor of Wrexham County Borough Council, determined by that Council.
One Councillor of Denbighshire County Council, determined by that Council.
One Representative of the other Scheme Employers (not admission bodies) in the Clwyd
Pension Fund as defined by Schedule 2 of the Local Government Pension Scheme 2013, as
amended from time to time, appointed in accordance with procedures agreed by the Chief
Officer (People and Resources) in consultation with the members of the Pension Fund
Advisory Panel.
One Representative of the scheme members of the Clwyd Pension Fund, appointed in
accordance with procedures agreed by the Chief Officer (People and Resources) in
consultation with the members of the Pension Fund Advisory Panel.
The Council's Constitution permits named substitutes for Flintshire County Council
members only, providing they satisfy the knowledge and skills policy of the pension fund.
The terms of reference for the members range from four to six years, and members may be
reappointed for further terms.
All members have equal voting rights.
101
4.
The Fund's investment policy and management of the Fund will be directed at achieving and
maintaining a fully funded scheme and, where practical, a stable employers' contribution rate.
5.
Since 1 April 1996, the Clwyd Pension Fund has published a set of Corporate Governance
Policy Guidelines, supported by other statements on social, environmental, ethical and
governance-related investment issues. The Clwyd Pension Fund has incorporated all these
areas into a Sustainability Policy.
6.
In determining its detailed fund management arrangements and operations, the Pension
Fund Committee adopt a positive engagement approach on sustainability. There will
therefore be no direct investment restrictions applied and managers will have full freedom to
invest. However, under the Fund’s Sustainability policy, managers will be encouraged to take
account of sustainability issues in their investment decisions and to use their influence with
companies on behalf of the Fund to effect improvements. Their performance in these
respects will be monitored and reported in accordance with the terms of the Sustainability
Policy.
7.
The Fund will pursue a policy of controlling risk through diversification of both investments
and fund managers (see table below) and the Liability Hedging Portfolio. Fund managers will
be given clear investment mandates, incorporating appropriate benchmarks and agreed
targets, and will be employed on a fully discretionary basis within these mandates, subject to
compliance with any legislative requirements and the Fund’s stated policies.
8.
Investment management arrangements will be reviewed periodically and as required. A full
in-depth review will be carried out at least every four years. However, a conditional medium
term asset allocation (CAA) has been introduced to manage major risks to the long term
strategic asset allocation which may emerge between Fund Reviews.
9.
The security of the Fund's assets will be closely monitored through its Global Custodian or
the custodians of pooled vehicles.
10.
The Fund's investment managers and custodians will be made aware of this Statement of
Investment Principles.
102
Strategic Asset Allocation (SAA) and Implementation
SAA
Scenario
Rebalancing
CAA
(%)
Range
Range
Equity - Alpha Seeking
6.5
PacRim – High Alpha
+/- 1
6.5
Emerging Markets – Core
+/- 1
1.0
Frontier Markets
5.0
Global – High Alpha
+/- 1
5.0
Other – High Alpha
+/- 1
24.0
+/- 2
+/- 10
24.0
TOTAL EQUITY
+/- 3
+/- 15
Fixed Interest
15.0 Unconstrained
+/- 2
0.0 Government Bonds
0.0 Cash/Other
+/- 5
15.0
+/- 2
+/- 15
15.0 TOTAL FIXED INTEREST
+/- 2
+/- 15
Alpha-Seeking Alternatives
8.0
Private Equity
5.0
Hedge Fund of Funds
2.0
Free
15.0
+/- 3
Real Assets
7.0 Property
2.0 Infrastructure
2.0 Timber/Agriculture
4.0 Commodities
15.0
+/- 3
30.0 TOTAL OTHER ASSETS
+/- 5
+/- 5
Tactical Asset Allocation
6.0 GTAA
+/- 1
3.0 DTAA
+/- 1
3.0 Macro FOF
+/- 1
12.0
+/- 2
TOTAL TAA
+/- 2
+/- 5
Liability Hedging portfolio
Interest rate hedge
Inflation rate hedge
Collateral portfolio – Bonds/Cash
Collateral portfolio – Equity
19.0
TOTAL HEDGING PORTFOLIO
0-35%
+20%
103
Manager
Asset Category
Benchmark
Target
(Gross)
Stone Harbor Unconstrained Fixed Interest
1 month Libor
+1.50%
Aberdeen
Asia Pacific (ex Japan) Equities MSCI AC AP (ex Japan)
+3.50%
Wellington
Emerging Markets Equity
MSCI EM Free
+2.50%
Aberdeen
Frontier Markets Equity
MSCI Frontier Markets
+3.00%
Investec
Global Equity
MSCI AC World NDR
+3.00%
Duet
Global Equity
Absolute Return
+8-10%
Wellington
Commodities
GSCI Sectors
+2.00%
Blackrock
Global Tactical Asset Allocation 7 day LIBID
+15.00%
Bluecrest
Global Tactical Asset Allocation Absolute Return
+10-15%
Pyrford
Global Tactical Asset Allocation RPI
+5.00%
Liongate
Fund of Hedge Fund
Absolute Return
+8-10%
SSARIS
Fund of Hedge Fund
Absolute Return
+8-10%
Various
Property
IPD Balanced PUTS Weighted
Average
Various
Private Equity
Absolute Return
+15.00%
Insight
Liability Hedging portfolio
Scheme liabilities
Match
104
A REFERENCE GUIDE TO THE FUND'S
STATEMENT OF INVESTMENT PRINCIPLES
1.
INTRODUCTION
1.1
The Pensions Act 1995 requires Trustees of private sector pension schemes to prepare and
keep up to date a written statement recording the investment policy of the Pension Fund,
through a Statement of Investment Principles (SIP).
1.2
The Local Government Pension Scheme (LGPS), which is subject to Regulations made
under the Superannuation Act 1972 and the Public Service Pensions Act 2013, and which
regulates some of the same issues, was initially exempt from this requirement of the 1995
Act. Nevertheless, the creation, consideration and periodic review of a Statement of
Principles on Investment and Fund Management was considered best practice for all funds
and one with which the Clwyd Pension Fund voluntarily complied with from 1 April 1997.
1.3
With effect from 1 July 2000, LGPS Funds were required by the Local Government Pension
Scheme (Management and Investment) (Amendment) Regulations 1999, to publish a SIP.
These regulations have been replaced by, the Local Government Pension Scheme
(Management and Investment of Funds) Regulation 2009. The Regulations state the SIP
must include the following:
w the types of investments held
w the balance between different types of investments
w risk, including ways risks are measured and managed
w the expected return on investments
w the realisation of investments
w the extent to which social, environmental or ethical
considerations are taken into account in the selection, retention
and realisation of investments
the exercise of the rights (including voting rights), if any,
attaching to investments
stock lending
1.4
The SIP is designed to comply with guidance given by the Secretary of State. It incorporates
a newly formulated Sustainability Policy, covering social, environmental, ethical and
governance-related investment issues and, as required, details the Fund’s degree of
compliance with the Myners 6 principles.
1.5
The SIP is effective from 1 July 2014 and will be reviewed every six months with any material
changes published.
1.6
The SIP should be read in conjunction with the following statutory documents:
Funding Strategy Statement implemented from 1st April 2014
Governance Policy and Compliance Statement
Communications Policy Statement
Clwyd Pension Fund Annual Report and Accounts
Clwyd Pension Fund Actuarial Valuation as at 31st March 2013
All the above statements and documents can be found on the Fund’s web site at
www.clwydpensionfund.org.uk
105
2.
STATUTORY FRAMEWORK & GOVERNANCE BACKGROUND
2.1
Flintshire is designated as Lead Authority for the Clwyd Pension Fund by Regulations made
under the Local Government (Wales) Act 1995, which dealt with the reorganisation of Local
Government in Wales, effective from 1 April 1996.
2.2
The administration of the Clwyd Pension Fund is a statutory duty laid upon the authority by
Regulations made under the Superannuation Act 1972 and the Public Service Pensions Act
2013. The Fund is simply a Fund of the Council, albeit closely regulated by statutory
instruments, and has no separate legal identity from the Council.
2.3
It follows, therefore, that Elected Members are not Trustees of the Fund, even though
convenient usage sometimes results in that term being applied to them. Elected Members
do, however, have a duty of care to the beneficiaries, employers and the local taxpayers,
which is analogous to the responsibilities of Trustees in the private sector. They could
therefore be more accurately described as "Quasi-Trustees". The term Quasi-Trustee will be
used throughout this document in order to distinguish those responsible for the Fund from
contributor, pensioner and deferred members of the Fund who will, collectively, be termed
beneficiaries.
2.4
The Clwyd Pension Fund, as a statutory LGPS Fund, is set up to provide death and retirement
benefits for Local Government employees in North East Wales, other than teachers, police
and fire fighters. In addition, employees of certain other qualifying bodies which provide
services similar to that of Local Authorities have been admitted to membership of the LGPS
and hence the Fund. The latest Regulations made under the Public Service Pensions Act are
the LGPS Regulations 2014, which came into effect from 1 April 2014. These are amended
from time to time to take account of scheme changes.
2.5
In the discharge of this function, in May 2014, the Fund's governance arrangements were
reviewed and the Council established a formal Pension Fund Committee, supported by a
Pension Fund Advisory Panel. The Corporate Finance Manager is the Section 151 Officer
and has a statutory responsibility for the proper financial affairs of Flintshire County Council
including Clwyd Pension Fund matters. In addition, the Council has delegated specific
responsibilities to the Chief Officer – People and Resources. It is expected that this
governance structure will be expanded later in 2014 or early 2015 as a result of the
requirement by the Public Service Pensions Act 2013 to introduce a local pension board to
assist in compliance of pension fund matters. Further details of the Fund’s governance
arrangements can be found in Fund’s separate Governance Policy & Compliance Statement.
2.6
As noted above, in administering the investments of the Fund, the Chief Officer (People and
Resources) and Quasi-Trustees have a duty of care. That duty has been expressed as
seeking, ".....to maximise the return on the invested funds so far as it can do so without
incurring unacceptable risks" (McFadyen QC 5/90).
2.7
The investment responsibilities of the Clwyd Pension Fund Committee and other third parties
involved with the investment management and funding of the Fund are set out as follows:
106
The constitution of the administering authority delegates the following investment
responsibilities to the Clwyd Pension Fund Committee:
Approving the Statement of Investment Principles which includes investment
strategy, Sustainability Policy, Myners Compliance Statement, setting of
investments targets and ensuring these are aligned with the Fund’s specific
liability profile and risk appetite.
Monitor the implementation of these policies and strategies on an on-going basis
Selection, appointment and dismissal of the Fund’s, investment consultants,
global custodian, fund managers, and lawyers
As allowed for in the Constitution the Clwyd Committee Fund Committee delegates certain
functions relating to the above responsibilities to officers who in turn must take advice where
required from the Investment Consultant and/or Pension Advisory Panel. The outcomes from
these delegated functions are reported to the Committee
They are listed below:
Rebalancing and cash management
Implementation of strategic allocation including use of ranges
Implementation of flight-path triggers
New mandates and emerging opportunities
Ongoing monitoring of Fund Managers
Selection, appointment and dismissal of Fund Managers
Other urgent (or non- urgent) matters as they arise
The Investment Consultant is responsible for:
Providing the Clwyd Pension Fund Committee with advice regarding the strategic
asset allocation for the Fund.
Providing the Clwyd Pension Fund Committee with advice regarding the
investment structure of the Fund required to meet the investment objectives
agreed.
Monitoring the performance of the strategy and advising the Clwyd Pension Fund
Committee on changes to the strategy or asset allocation that may be required.
Monitoring the performance of the underlying fund managers and advising the
Pension Advisory Panel on changes to the managers that may be required.
Maintaining and updating the Statement of Investment Principles.
The Fund Managers are responsible for:
The investment of the Fund's assets in compliance with prevailing legislation, and
each Manager's detailed Investment Management Agreement or Investment
Memorandum.
Where allowed, tactical asset allocation around the benchmarks, as set out in the
Investment Management Agreements or Investment Memorandum.
Stock selection within asset classes (purchases and realisations).
Preparation of a quarterly review of investment performance.
Attending review meetings with the Fund’s officers, advisors and quasi-trustees.
107
Providing details, as required, to the Fund’s custodian and independent
performance measurer.
Reporting on compliance with this SIP, including the Sustainability Policy.
The Global Custodian is responsible for:
Where the Fund holds segregated assets, the safekeeping of assets, the
collection of income, the voting of shares and the execution of transactions in
accordance with the Custody Agreement and the Fund's corporate governance
guidelines within the Sustainability Policy.
Its own compliance with prevailing legislation.
Providing the Fund with quarterly valuations of the Scheme's assets, details of all
transactions during the quarter, bank statements and all other relevant
documentation.
The Actuary is responsible for:
Providing the Clwyd Pension Fund Committee with advice as part of the
establishment of strategic asset allocation benchmarks.
Providing the Clwyd Pension Fund Committee with advice as to the maturity of
the Fund, its funding level and flight-path implementation.
Working with the Fund at each actuarial valuation to produce a Funding Strategy
Statement (FSS).
Performing the triennial valuations.
The Independent Adviser is responsible for:
Reporting on the investment governance arrangements for the Fund including the
performance of the Committee and Advisory Panel
Monitoring the management of investment risks
Assist the Chief Officer (People and Resources) with the implementation of the
Fund’s Knowledge and Skills Policy.
3.
FUNDING LIABILITIES AND INVESTMENT POLICY
3.1
The LGPS is a public sector statutory defined benefit Pension Scheme that provides benefits
related to the final salary of members. Each member's pension is specified in terms of a
formula, based on salary and service, and is unaffected by the investment return achieved
on the Fund's assets. Full details of Scheme benefits are set out in the LGPS Regulations.
3.2
All active members of the Scheme are required to make banded pension contributions
dependent on salary.
3.3
The employing bodies are responsible for meeting the balance of costs necessary to finance
the benefits payable under the Scheme and their contribution rates are determined on a
triennial basis (Actuarial Valuation). These contribution rates take account of both assets
and estimated liabilities, both of which are subject to volatility.
3.4
Beneficiaries have an interest in the extent to which the Fund's assets are sufficient to meet
accrued benefits, albeit that their benefits are guaranteed by the Regulations. The
employers, however, have a direct financial interest in the investment return achieved on the
Fund's assets and movements in liabilities, since both can have a direct bearing on their own
costs.
108
3.5
The existence of surpluses or deficits from previous valuation periods can reduce or increase
the contributions made by employers. Given constraints on employer spending, volatility in
the employers' contribution rate is undesirable.
3.6
In managing the Fund, therefore, the overall investment objective should be:
to aim for a funding level of 100%;
to aim for long term stability in employers' contribution rates.
3.7
The Clwyd Pension Fund was funded at 68% of liabilities (2013 Actuarial Valuation) and
employers' rates are currently structured to achieve a gradual return to 100% funding by
2031.
3.8
Whilst stability of costs from the employers' rates has the higher priority, absolute cost to the
employer is also important. This implies that:
the cost of administering the Fund will be constrained by the adoption of best
management practice;
employers will adopt appropriate and economic policies in those areas where they have
discretion and where the costs of their actions fall on the Fund;
the Fund's overall investment policy will be aimed at superior investment returns relative
to the growth of liabilities. This implies that the Fund will continue to take an active risk
relative to its liability profile.
3.9
The investment policy of the Fund is intended to strike the appropriate balance between the
policy most suitable for long-term consistent performance and the funding objectives. A
favourable investment performance can play a valuable role in achieving adequate funding
over the longer term.
3.10 At a more detailed level, the Fund's membership comprises approximately 44% contributors
and 56% pensioners (including deferred and frozen pensions). The best asset match for
index-linked pensions would be index linked gilts, with perhaps some conventional bonds.
This would be a “least risk” investment strategy but would also result in an increase in
employer contributions. A departure from this “least risk” strategy, particularly the inclusion
of equity-type investments, increases risk but also adds the potential for higher returns, which
should over time reduce the contribution requirements. The Fund is a long-term investor and
can favour the latter.
3.11 The Fund’s current profile also shows that the extent of contributions will exceed the cost of
benefits in payment and administration expenses, producing a positive cash flow of over £10
million per annum. This means that there will be no immediate necessity to draw down money
from investments to pay pensions in the near future.
3.12 This positive cash flow means there is no pressure to switch to fixed interest stocks to ensure
an income stream for benefit payment purposes and a longer-term investment view can be
maintained. However the Clwyd Pension Fund is continuing to mature gradually in terms of
its scheme member mix and there is therefore a limited window of opportunity to seek higher
returns in order to get back to 100% funding from the 68% level noted above.
3.13 The Clwyd Pension Fund Funding Strategy implemented for three years from 1st April 2013
includes a number of investment return assumptions:
An investment return (discount rate) for the funding target of gilts + 1.4% (assumed 4.6%)*
An investment return for the future service contribution rate of 5.6% (Inflation + 3.0%)
109
Over a three-year period an investment return above these assumptions will contribute to
reducing the funding deficit and thus employer contributions, providing that liability
assumptions such as longevity and inflation remain on target. The Fund’s triennial Valuation
considers all these factors when determining employer contribution rates. New employer
rates were implemented from 1st April 2014. The next Actuarial Valuation will be as at 31
March 2016,
3.14 A Funding Strategy Statement (FSS) was prepared in accordance with Regulation 35 of the
Local Government Pension Scheme Regulations 2008. The Statement outlines the strategy
for recovering the funding deficit over 18 years. A copy of the FSS can be obtained from the
Fund’s web site at www.clwydpensionfund.org.uk. The funding strategy will be monitored
during 2014/17.
4.
INVESTMENT STRATEGY & RISK
4.1
On the basis of the above consideration, the following would appear to be the key factors to
be taken into account when determining an appropriate investment strategy for the Fund:
The Fund is a long-term investor.
Capital gain is more important than income generation and liquidity.
The Fund needs to take investment risk.
The level of out-performance would need to be in excess of gilt returns by more than 1.4%
to contribute to the Fund’s deficit. For future service liabilities, an investment return of
5.6% per annum is required, so a return in excess of this is needed to contribute to the
Fund’s deficit.
Risk or volatility should be constrained as far as possible, consistent with the achievement
of the returns required.
4.2
Risk, though defined in many ways, generally refers to the volatility of returns or their tracking
error in the context of investments. Investment theory suggests that different asset classes,
such as equities and bonds, behave in different ways and that diversifying the asset mix
within a Fund can reduce overall risk at total fund level.
4.3
The Fund’s overall strategic risk and return profile is currently determined through its strategic
asset allocation. In establishing the Fund’s long-term strategic asset allocation or strategic
benchmark, the key factors are the overall level of return being sought, the minimum level of
risk consistent with this and the impact of diversification in reducing this risk further. At asset
class or mandate level, asset class weightings, appropriate benchmarks and out-
performance targets are the key building blocks in framing this overall Fund strategy.
4.4
It is Fund policy to carry out a fundamental review of the Fund’s structure and management
arrangements at least every four years. The review includes research on market views for
the longer-term risk, return and correlation profiles for different asset classes and a more
tactical view on the global economic and market environment over the next three to five years.
This research is used to determine an optimum future balance between the various assets
classes and hence the Fund’s fixed strategic benchmark.
4.5
The last fundamental Fund Review was in 2010, implemented, in the main, from 1st April 2011
and monitored each quarter. A mandate with Insight to provide protection against the volatility
of interest rate and inflation rate changes was implemented in March 2014. In addition a
funding and risk management “Flight-path” was implement embedding longer term objectives
relating to the control of the volatility of funding outcomes. The optimisation model used in
2010 to determine the strategic benchmark suggests that the asset mix and the requirement
for fund managers to deliver out-performance against market indices should produce a long-
term return in the region of gilts + 5% with volatility of around 10%. This equates to an
information ratio (the return per unit of risk) just below 1 or 100%.
110
4.6
The latest Fund Review exercise commenced in early 2009, but with economic, fiscal and
market indicators extremely unclear so soon after 2008 and the credit crunch, the exercise
was postponed. The Fund Review was recommenced in early 2010/11 and implemented
from 1 April 2011. The new strategic asset allocation with both rebalancing ranges and
Conditional Asset Allocation ranges follows. The next review will commence in September
2014.
4.7
Although there is no long-term strategic allocation to cash/other assets, a tactical range has
been included to accommodate exceptional economic/stock market circumstances, where it
is not considered appropriate to re-balance the portfolio or where cash is held temporarily to
meet investment commitments in alpha seeking alternatives and real assets.
4.8
Once the asset allocation is agreed, there is a need to keep the Fund’s actual position under
review. Re-balancing of the Fund to keep it in line with the benchmark will incur costs and
such changes need therefore to be considered in light of the relevant costs and benefits. As
a result, re-balancing will only take place quarterly when an asset class has moved outside
the re-balancing ranges shown in the table above, except in circumstances outlined above.
4.9
In addition, the 2010 Fund Review introduced a medium term asset allocation (Conditional
Asset Allocation). The purpose is to manage major risks to the long term strategic asset
allocation which may emerge between Fund Reviews. The Pension Fund Committee has
delegated authority to implement these changes to the Clwyd Pension Fund Manager after
taking advice from the Investment Consultant.
4.10 The 2010 Fund Review also concentrated on risk diversity in place of asset diversification,
especially for inflation risk. Hence, new asset class groups have been created for real assets
and alpha seeking alternatives.
111
Strategic Asset Allocation
SAA
Scenario
Rebalancing
CAA
(%)
Range
Range
Equity - Alpha Seeking
6.5
PacRim – High Alpha
+/- 1
6.5
Emerging Markets – Core
+/- 1
1.0
Frontier Markets
5.0
Global – High Alpha
+/- 1
5.0
Other – High Alpha
+/- 1
24.0
+/- 2
+/- 10
24.0
TOTAL EQUITY
+/- 3
+/- 15
Fixed Interest
15.0 Unconstrained
+/- 2
0.0 Government Bonds
0.0 Cash/Other
+/- 5
15.0
+/- 2
+/- 15
15.0 TOTAL FIXED INTEREST
+/- 2
+/- 15
Alpha-Seeking Alternatives
8.0
Private Equity
5.0
Hedge Fund of Funds
2.0
Free
15.0
+/- 3
Real Assets
7.0 Property
2.0 Infrastructure
2.0 Timber/Agriculture
4.0 Commodities
15.0
+/- 3
30.0 TOTAL OTHER ASSETS
+/- 5
+/- 5
Tactical Asset Allocation
6.0 GTAA
+/- 1
3.0 DTAA
+/- 1
3.0 Macro FOF
+/- 1
12.0
+/- 2
TOTAL TAA
+/- 2
+/- 5
Liability Hedging portfolio
Interest rate hedge
Inflation rate hedge
Collateral portfolio – Bonds/Cash
Collateral portfolio – Equity
19.0 TOTAL HEDGING PORTFOLIO
0-35%
+20%
112
5.
IMPLEMENTATION OF INVESTMENT STRATEGY AND RISK
5.1
When implementing investment strategy, the Fund must comply with the Investment
Regulations laid before Parliament, which include:
The definition of an investment manager
Manager appointments and terms
Diversification of fund managers
The review of fund manager performance
Restrictions and limits on investments
Use of fund money by an Administering Authority
5.2
The policy of the Fund is to out-source the implementation of the investment strategy of the
Fund to professional fund managers. These fund managers are appointed by following EU
procurement legislation. In selecting managers, the Fund gives weight to their past
performance, risk and compliance, investment and administration processes, key people,
fees and degree of compliance with the Fund’s Sustainability Policy.
5.3
On appointment, fund managers are delegated the power under the appropriate client
agreement (Investment Management Agreement, Investment Memorandum) to make such
purchases and sales as they deem appropriate within their mandate. Each fund manager
mandate has either a benchmark or target to outperform or achieve over three-year rolling
periods. A quarterly update is received from each of these funds managers and regular
meetings are arranged, as outlined in the Fund’s Governance and Compliance Statement.
5.4
There are exceptions to the above arrangements. Funds selected within the allocations to
alpha seeking alternatives and real assets are treated as specific investment decisions and
therefore outside the scope of EU Procurement Regulations. Here, investment funds are
selected for recommendation to the Pension Advisory Panel after appropriate due diligence
by the Fund’s officers and Investment Consultant, with criteria similar to those noted for fund
manager appointments. These investments are usually the subject of detailed Limited
Partnership agreements or Investment memoranda that set out the arrangements for their
operation. As a minimum, an annual review on these investments is undertaken but
valuations are provided quarterly for the most part. Although, a size limit for individual
investments is not noted within the Fund’s policy statements, the commitments made are
usually in the region of £5m-£8m.
5.5
In terms of historic background, the Fund has for many years now pursued a policy of
lowering risk by diversifying both investments and fund managers. As a result of a
fundamental fund management review carried out in 1992, a specialist approach was
adopted and three fund managers were appointed with effect from 1 April 1993 to manage
specific portfolios, with prescribed benchmarks and out-performance targets. This structure
was reviewed again during 1997 and a number of changes were introduced, including the
appointment of a fourth manager, aimed primarily at marginally reducing risk and increasing
diversification. A further exercise was carried out in 1999 to review detailed asset allocation
processes and manager performance on a couple of specific portfolios. No manager
changes were proposed as a result of the review but a further exercise in 2000 resulted in
the Japanese portfolio being awarded to Fidelity from 1 April 2001. The 2003 Fund Structure
Review resulted in an increased allocation to alternative investments.
5.6
The 2006 Fund Review exercise was implemented, in the main, from 1st April 2007. The
Fund made no fundamental structural adjustments but there were changes in the method of
delivery, aimed at further diversification from, and less constraint on, traditional asset classes.
New investment approaches, tools and products were also utilised to improve returns further
and reduce volatility. All the investments were in pooled vehicles rather than segregated
accounts.
113
5.7
The only change before the 2010 review was in fund manager arrangements relating to the
hedge fund of fund mandates. Pioneer and BlackRock were replaced by Liongate and
SSARIS during 2009, although for liquidity reasons some assets still remain with the original
managers at this time. BlackRock acquired BGI mandates via a business merger of the
companies.
Manager
Asset Category
Benchmark
Target
(Gross)
Stone Harbor Unconstrained Fixed Interest
1 Month LIBOR
+1.50%
Aberdeen
Asia Pacific (ex Japan)
MSCI AC AP (ex Japan)
+3.50%
Wellington
Emerging Markets Equity
MSCI EM Free
+2.50%
Aberdeen
Frontier Market Equity
MSCI Frontier Markets
+3.00%
Investec
Global Equity
MSCI AC World NDR
+3.00%
Duet
Global Equity
Absolute Return
+8-10%
Wellington
Commodities
GSCI Sectors
+2.00%
BlackRock
Global Tactical Asset Allocation
7 day LIBID
+15.00%
Bluecrest
Global Tactical Asset Allocation
Absolute Return
+10-15%
Pyrford
Global Tactical Asset Allocation
RPI
+5.00%
Liongate
Fund of Hedge Fund
Absolute Return
+8-10%
SSARIS
Fund of Hedge Fund
Absolute Return
+8-10%
Various
Property
IPD Balanced PUTS Weighted
Average
Various
Private Equity
Absolute Return
+15.00%
Insight
Liability Hedging portfolio
Scheme liabilities
Match
5.8
The current investment strategy is framed by the 2010 Fund Review exercise and
implemented from the 1st April 2011. The following are the main changes made:
Equity exposure was reduced but tactical asset allocation, which will include some equity
exposure, was increased.
Equity exposure to Pacific Rim and Emerging Markets has increased.
Global active equity was increased but otherwise active regional equity managers in
developed markets have been replaced by one passive manager.
Continued exposure to alpha seeking alternative managers.
114
5.9
As a result the Fund redeemed from 6 fund managers and appointed 4 new managers:
SSgA – Passive Equity, UK, Europe, US and Europe
Duet Group – Global Equity – High Alpha
Bluecrest – Tactical Asset Allocation
Pyrford – Tactical Asset Allocation
5.10 In April 2012, the Fund tendered for a £7 million Frontier Equity manager and appointed
Aberdeen in May 2012.
5.11 In March 2014, the Fund established a Liability Hedging programme covering both nominal
and inflation linked interest rates. A Flightpath for increasing the level of protection of the
hedges was agreed along with other funding level triggers. Insight Investment Management
were appointed to manage this hedging portfolio in relation to market yield triggers and the
Pension Fund Advisory Panel monitors the funding level triggers relating to the overall funding
and investment risk management.
5.12 As part of the above changes the passive equity exposure with SSGA was sold and the cash
transferred to a unit trust managed by Insight Investments. This cash was used as collateral
to replicate the equity exposure through total return swaps and to buy exposure or assets to
match the Fund’s liabilities. Also, the benchmark for the unconstrained fixed income mandate
was changed from a gilt benchmark to an absolute return benchmark from April 2014.
6.
CASH STRATEGY
6.1
From 1st April 2011 Investment Regulations require the Pension Fund to have a separate
bank account from the Local Authority. Therefore a new policy is required on the
management of the Pension Fund’s cash which was previously deposited together with
Council monies following the Council’s Treasury Management Policy.
6.2
The Pension Fund does not have a strategic allocation to cash for investment purposes but
holds surplus cash for paying:
Benefits and transfers as per the Regulations.
The administration costs of the Fund.
The Investment management fees.
Commitments to real assets and alpha seeking alternative asset managers.
However in extreme market conditions cash could be used as part of the Conditional Asset
Allocation.
6.3
The aim is to avoid requiring to borrow for liquidity purposes, although Investment
Regulations allow Pensions Funds to borrow for a maximum of 90 days.
6.4
The cash could be deposited in one of the following, subject to cash flow requirements:
The Pension Fund bank account with the National Westminster bank for daily liquidity.
A deposit account with the National Westminster Bank with access up to 180 days notice.
A BlackRock AAA Money Market Fund for unexpected liquidity requirements or higher
rates of return.
6.5
The Clwyd Pension Fund Manager will arrange for the daily implementation of the cash
strategy.
115
7.
SUSTAINABILITY
7.1
The issue of social, environmental, ethical investment and corporate governance has been
considered on a regular basis since 1996. On 1 April 1996, the Clwyd Pension Fund
published a set of Corporate Governance Policy Guidelines incorporating requirements on
social, ethical and environmental awareness. Further updating has been carried out on a
regular basis since then and further supporting statements have been issued. From 1st July
2010 the Clwyd Pension Fund has incorporated all these areas and others into its new
Sustainability Policy.
7.2
Committee members are firm supporters of the need for social, environmental and ethical
improvements by companies and, subject to its primary fiduciary duties, have a clear view
that the investment process should be used as a means of encouraging and achieving this.
The key issue, considered at length by the Chief Officer (People and Resources) and the
Committee, is how these aims could be best met and the outcome is the new all-embracing
Sustainability Policy.
7.3
At its simplest sustainability is about focusing attention on longer-term issues. More
specifically for Pension Fund investors, it concerns delivering the long-term returns required
to fund long-term liabilities by ensuring that the long-term risks inherent in investments are
recognised and, where possible, addressed. These risks are many and varied but include
environmental, social, ethical and governance issues.
7.4
In framing an approach to sustainability, the key focus has to be on the application to the
Fund’s operation of the United Nations Principles on Responsible Investment (UNPRI) and
specifically principles 1 and 2, as these underlie most investment and governance processes.
7.5
The aims of the Fund’s Sustainability Policy, therefore, will be both to ensure that the Fund’s
future strategy, investment management actions, governance and reporting procedures take
full account of longer-term risks and sustainability and to promote acceptance of sustainability
principles, working together with others to enhance the Fund’s effectiveness in implementing
these.
7.6
In order to achieve its stated objective, the Clwyd Pension Fund will apply a series of
guidelines covering most aspects of pension fund investment, structured in accordance with
UNPRI principles 1-6 and covering –
Investment strategy (UNPRI 1)
Company engagement & voting (UNPRI 2)
Investment management & performance monitoring (UNPRI 3)
Investment manager selection & contracts (UNPRI 4)
Collaboration (UNPRI 5)
Reporting & disclosure (UNPRI 6)
7.7
As part of the Policy, the Clwyd Pension Fund continues to believe in an active engagement
approach to the pursuit of its sustainability objectives and thus will not adopt a negative
approach to sustainability, which involves screening and excluding investment opportunities
nor will it invest in pooled vehicles constructed using this same approach. It will encourage
its managers to adopt a long-term approach that involves working with companies to
encourage improvement in all sustainability areas, will monitor the performance of managers
in pursuing such objectives and will invest directly in specific vehicles and investment areas
that clearly match its sustainability objectives.
116
8.
COMPLIANCE WITH GUIDANCE
8.1
The Investment Regulations require the Fund to explain the extent to which it complies with
guidance given by the Secretary of State. The most significant guidance published in 2009
is CIPFA’s “Investment Decision Making and Disclosure”, a guide to the application of the
revised Myner’s Principles. The six Myner’s Principles are:
Effective Decision Making
Clear Objectives
Risk and Liabilities
Performance Assessment
Responsible Ownership
Transparency and Reporting
8.2
The Fund’s compliance statement on these Myners Principles is attached, explaining the
extent of compliance with each Principle and the reasons for this. In summary the statement
demonstrates near full compliance with all six Principles. In areas where compliance is only
partial, the statement also identifies areas for review and improvement. The information in
the SIP itself provides more details on the application of the Principles.
8.3
The Financial Reporting Council (FRC) has published a Stewardship Code. The aim is to set
out best practice principles in respect of shareholder engagement with companies and
disclosure of such activity. It is intended that shareholders adhere to these principles using a
‘comply or explain’ approach. The extent of the Fund’s compliance with each of the seven
principles is attached. In summary the statement demonstrates full compliance with five of
the principles and identifies areas for possible improvement for two of the principles.
8.4
The Investment Regulations require an administering authority to make a statement about its
policy on stock lending. The Fund only currently invests in pooled vehicles so cannot
undertake any stock lending. However, there may be, subject to the governing document for
the pooled vehicle, an option to stock lend within that pooled fund.
8.5
The Secretary of State has indicated that there may be further consultation on changes to
the Investment Regulations or further points of guidance issued. The SIP will be updated on
a six monthly basis to reflect these and any other changes.
8.6
The Fund's Annual Report and Accounts sets out current details relating to the following
areas, as determined by the LGPS Regulations 2008:
A report on the management and financial performance of the Fund
A report explaining the investment policy and performance
A report on the administration arrangements
An actuarial statement including the funding level
Funding Strategy Statement
Statement of Investment Principles (SIP)
Governance Compliance statement
Pension Fund Accounts
Pension Fund Administration strategy
Communication Policy statement
117
SUSTAINABILITY POLICY
Definition
At its simplest sustainability is about focusing attention on longer-term issues. More specifically for
pension fund investors, it concerns delivering the long-term returns required to fund long-term
liabilities by ensuring that the long-term risks inherent in investments are recognised and, where
possible, addressed. These risks are many and varied but include environmental, social, ethical
and governance issues.
Legal Framework, Constraints & Considerations
In framing a Sustainability Policy, the following are pertinent –
There already exists a regulatory requirement to include in the Fund’s Statement of Investment
Principles (SIP) details of its policy on social, ethical and environmental issues. This
Sustainability Policy encompasses such issues and will be updated as required to take account
of relevant new regulatory requirements.
The Fund is required to fulfil its overriding fiduciary duty to focus as a primary consideration on
financial performance and the maximisation of Fund returns, after taking full account of all
existing and future financial risks. Such risks increasingly include sustainability issues.
As the Fund uses third part providers for the most part and invests largely through pooled
vehicles, its level of active engagement with underlying investment companies and its control
over governance issues is limited to some extent.
The investment industry tends to focus on short term factors in terms of company interaction,
shares prices and performance, and fund managers incentives tend to reflect this rather than
being aligned with the longer-term objectives of pension fund investors.
Objective
Objective
Within the above legal framework, constraints and considerations, the Clwyd Pension Fund’s objective
aim will be to –
Ensure that its future strategy, investment management actions, governance and reporting
procedures take full account of longer-term risks and sustainability;
Promote acceptance of sustainability principles and work together with others to enhance the
Fund’s effectiveness in implementing these.
United Nations Principles for Responsible Investing (UNPRI)
Details of the UNPRI are attached as an Appendix A to this Sustainability policy document. Given
the constraints outlined above and particularly the pooled nature of many of the Fund’s investments,
it would be difficult for the Fund to become a formal signatory to the UNPRI.
United Nations Principles for Responsible Investing (UNPRI)
The Clwyd Pension Fund –
Is committed to the principles underlying the United Nations Principles for Responsible Investing
(UNPRI) and will be an active supporter of these;
The
Fun
Wil d Objective st
l encourage it ate
s e d abo
xternal ve
m a
an lrea
age dy
rs t enco
o bec m
o p
measse
sign s mo
atoriest of
s to t th
hee UNPRI.
UNPRI.
118
Application of Sustainability Principles
In order to achieve its stated objective, the Clwyd Pension Fund will apply a series of guidelines
covering most aspects of pension fund investment under the following headings –
Sustainability approach
Investment strategy (UNPRI 1)
Company engagement & voting (UNPRI 2)
Investment management & performance monitoring (UNPRI 3)
Investment manager selection & contracts (UNPRI 4)
Collaboration (UNPRI 5)
Reporting & disclosure (UNPRI 6)
Review
The paragraphs below set out the Fund’s thought processes in establishing such guidelines and
detail the guidelines adopted as part of this Sustainability Policy document.
Sustainability Approach
In framing an approach to sustainability, the key focus has to be on the UNPRI principles 1 and 2
as these underlie most investment and governance processes. Sustainability-related issues have
been considered on a regular basis for many years, with broad corporate governance policy
guidelines in place from 1996. More recently these form part of the Fund’s SIP and are reviewed
annually.
The Clwyd Pension Fund approach has always been and continues to be based upon “active
engagement”. This involves the Fund’s managers researching and forming a view on the
sustainability credentials of companies, taking this into account in investment decisions and, where
there are sustainability concerns, on environmental, social, ethical or governance grounds, engaging
with companies to seek and achieve positive change.
Sustainability Approach
The Clwyd Pension Fund believes in an active engagement approach to the pursuit of its sustainability
objectives and, on this broad basis, it –
Will not adopt a negative approach to sustainability which involves screening and excluding
investment opportunities;
Will not invest in pooled vehicles constructed using this same approach;
Will encourage its managers to adopt a long-term approach that involves working with companies
to encourage improvement in all sustainability areas;
Will monitor the performance of managers in pursuing such objectives;
Will invest directly in specific vehicles and investment areas that clearly match its sustainability
objectives.
119
Investment Strategy
The Clwyd Pension Fund recognises that there is a relationship between good environmental,
social, ethical and governance practices and long-term sustainable business profitability and in its
investment strategy aims to place a strong focus on this. It is recognised that, whilst there are links,
the three main sustainability areas, environmental, social and ethical, each raise their own issues,
although the approaches and guidelines appropriate to each are similar.
Environmental
The impact of poor environmental practices on profit sustainability is very clear. There are direct
costs in terms of fines for pollution etc. and increasingly now for carbon-charging and waste disposal
that can have major impacts on business models. In addition there are potential indirect costs from
bad publicity and reputational risk. On the positive side, however, there are opportunities to promote
sustainability through investment in new technologies aimed at cleaner solutions.
Social
This concerns areas such as employee relations, community relations and health & safety and again
can lead to direct financial costs from health and safety breaches and strike action etc, as well as
more subtle risks to company operations, reputation and long-term profitability.
Ethical
This is a difficult area as ethical views can vary considerably but there are some areas that are
widely accepted for inclusion. These include supply chain issues that reflect potential breaches of
human rights and especially the employment of children, bribery and corruption and operations in
certain world areas such as Zimbabwe.
Investment Strategy
On forming and implementing its investment strategy, the Clwyd Pension Fund –
Will encourage its managers to use their own resources or specifically-focused research agencies to
identify at company level actual or potential financial risks attributable to sustainability issues –
environmental, social or ethical;
Will seek, through its managers, to engage with companies that have questionable environmental,
social or ethical practices in order to seek improvements;
Will seek, through its managers, to engage with companies that have a carbon-intensive or water-
intensive focus in order to promote alternative approaches and longer-term reductions;
Will encourage the adoption of the best environmental standards amongst its property and
infrastructure managers;
Will, subject to fiduciary duties, make selective investments in environmentally supportive areas
such as clean-technologies, clean energy, environmental infrastructure and forestry etc.
120
Company Engagement & Voting
Getting the Board right with the right behaviours and structures means that better decisions are
more likely and this adds value over the longer term. The Fund’s former broad corporate
governance policy guidelines, whilst touching upon environmental, social and ethical issues, were
largely designed to address these Board factors and related voting issues. Myner’s Principle 5 is
also relevant here. This requires that trustees adopt, or ensure their investment managers adopt,
the Institutional Shareholders’ Committee (ISC) Statement of Principles on the responsibilities of
shareholders and agents. The Institutional Limited Partners Association (ILPA) has authored the
ILPA Private Equity Principles, a document that contains best practice concepts and hat speaks to
issues relating to the alignment of interest between general partners and limited partners, fund
governance, transparency and reporting.
Company Engagement & Voting
The Clwyd Fund –
Will aim to comply with the Myner’s Principle 5 on shareholder activism and become more engaged
as an active investor, especially with companies where sustainability factors are a matter of concern;
Will adopt, ensure that its managers adopt or ascertain their level of compliance with the ISC
Statement of Principles on the responsibilities of shareholders/agents;
Will adopt, ensure that its managers adopt or ascertain their level of compliance with the ILPA
private equity principles;
Will, wherever practical, exercise voting rights through its managers based upon the following
broad criteria –
o
The prime consideration must be financial and the protection of the Fund’s assets in the long
term;
o
There should be a properly structured Board including an appropriate number of contributing
independent non-executive directors;
o
Unless there are strong arguments to the contrary and adequate safeguards guidelines, no
director should hold the posts of Chairman and Chief Executive at the same time or be in a
position of unaccountability by virtue of having absolute control;
o
All Directors should be subject to at least three-yearly re-election;
o
In view of their stewardship role, non-executive directors should normally be independent in
terms of other links to the company and other directorships;
o
The issue of shares with reduced or non-existent voting rights often disadvantages the majority
of shareholders and should not normally be supported;
o
Existing shareholders in a company should have a right to subscribe for new equity capital
raised by a company, normally in proportion to their existing share of the company's equity
capital;
o
Unless financial criteria dictate otherwise, the general policy on take-over bids should be to
support incumbent management in good standing;
o
Directors’ remuneration packages in different companies should reflect relative performance
taking business size and complexity into account;
o
A properly constituted Remuneration Committee is the best judge of what is necessary to recruit,
train and motivate;
o
If not already in place, companies should be working towards one year fixed term contracts for
executives;
o
There should be a properly constituted Audit Committee;
o
No return that is rightfully the Fund's should be diverted to political donations;
o
Charitable donations are acceptable if they are reasonable and have public relations values.
Will periodically review these criteria and inform investment managers of changes, should there be
any.
121
Investment Management & Monitoring of Performance
Investment managers need to be made aware of the Fund’s Sustainability Policy and related
guidelines in order that these can be taken account of in their investment management decision-
making processes. In order to monitor the performance of external managers in terms of their
degree of compliance with the guidelines and the performance of underlying investments with the
Fund’s sustainability objectives, there needs to be regular reporting and disclosure on sustainability
issues, particularly areas of concern, as well as actions taken to address these. A similar approach
needs to be adopted on in-house managed investments.
Investment Management & Monitoring of Performance
The Clwyd Pension Fund –
Will endeavour to ascertain the extent to which its fund managers are formal signatories to, support
and comply with the UNPRI;
Will encourage its fund managers to produce policy statements on sustainability issues and report
formally on these.
Will seek, through its managers, to ensure the full disclosure of environmental, social and ethical
policies and practices by companies in which the Fund is invested;
Will ask investment managers for statements on their degree of compliance with the ISC Statement
of Principles on the responsibilities of shareholders and agents;
Will request policy statements and practical evidence of the adoption of the best environmental
standards amongst its property and infrastructure managers;
Will ask private equity managers for statements on their degree of compliance with the ILPA private
equity principles;
Will ensure that investment managers regularly report records of voting on the Fund’s investment
and periodically produce statements on compliance or otherwise with the broad corporate
governance elements of the Fund’s Sustainability Policy;
Will assess the performance of managers both in terms of financial returns and on sustainability
issues over a time frame that adequately reflects the Fund’s sustainability objectives.
122
Investment Manager Selection & Contracts
The Fund’s standard selection process for managers has always incorporated broad questions on
sustainability issues but the main focus has been on investment philosophy, process, personnel and
performance. Within process, there has been some limited focus on sustainability inputs to
investment decision-making but risk has tended to be quite narrowly defined and linked to shorter-
term financial rather than longer-term sustainability considerations. As a result, sustainability has
never been a main factor in the comparative assessment of managers prior to appointment or in the
formal appointment process itself. This approach has now been reviewed with a view to
incorporating into the selection and contracting process a far greater focus on sustainability issues.
Investment Manager Selection & Contracts
As an active part of this process, the Clwyd Pension Fund –
Will require from potential managers formal statements of their objectives, policies and practices
on sustainability and related factors;
Will ascertain from potential managers the degree to which sustainability factors are taken into
account in the investment decision-making process;
Will seek from potential managers details and the level of in-house tools, agency inputs and other
resources on sustainability factors used in their investment processes;
Will review with potential managers the quality, integration and impact of such research on their
investment processes and performance;
Will consider the record of potential managers on active engagement with companies, voting and
governance issues generally;
Will, in the assessment of potential managers, give appropriate weight to all these sustainability and
related factors;
Will, where relevant and appropriate, build elements of the Fund’s Sustainability Policy and
detailed guidelines into investment management agreements.
123
Collaboration
The Clwyd Pension Fund is already a committed member of the Local Authority Pension Fund
Forum (LAPFF), a body that seeks improvements in corporate governance, promotes socially
responsible investing (SRI) and, with the Fund’s active encouragement, is devoting considerable
resources to environmental issues and climate change in particular. LAPFF is already a signatory
to the UNPRI. The Fund has also had contact with other relevant bodies on sustainability issues
both directly and through its managers.
Collaboration
The Clwyd Pension Fund –
Will join and/or collaborate with organisations that are relevant to pursuit of the Fund’s
sustainability objectives;
Will, subject to regulatory and operational constraints, seek relevant information from and share
relevant information with such organisations in order to further the effective delivery of its
Sustainability Policy.
Reporting & Disclosure
The Clwyd Pension Fund Annual Report already includes copies of various regulatory documents,
including various policy statements and the Fund’s SIP. The latter includes details of the Fund’s
current policy statements on social, environmental and ethical considerations and corporate
governance issues. The Annual Report is circulated widely and all these documents are also
published on the Fund’s website. It is already accepted that approaches on sustainability and other
policy areas tend to evolve and develop over time. It is essential therefore to keep policies and
practices under continual review so as to improve their efficacy.
Reporting & Disclosure
The Clwyd Pension Fund –
Will, through its quarterly meeting procedure, report regularly and as appropriate on relevant
sustainability issues;
Will, once a year, report formally on managers’ level of compliance with the its Sustainability Policy,
progress made in the year and areas where further progress needs to be made;
Will, once a year, review its Sustainability Policy in the light of best practice and agree any proposed
changes through its governance procedure;
Will circulate this revised document to relevant bodies and particularly its managers;
Will incorporate this revised document into its SIP and publish its contents both in the Annual
Report and on its website.
124
MYNERS PRINCIPLES – 2014 / 2015 COMPLIANCE
Principle 1
Administering authorities should ensure that:
Decisions are taken by persons or organizations with the skills, knowledge, advice and resources necessary to make them effectively and monitor
their implementation, and
Those persons or organizations have sufficient expertise to be able to evaluate and challenge the advice they receive, and manage conflicts of
interest.
Key Areas and Guidance
Comment & Actions
Compliance
It is good practice to have an investment sub- The administering authority delegates investment decisions to the Clwyd
Full
committee, to provide the appropriate focus and Pension Fund Committee. The Committee delegates functions to Officers who
skills on investment decision-making.
take investment advice as required from a Pension Advisory Panel who provide
appropriate focus and skills on investment decision making. Representatives
and roles are defined in the SIP.
This new governance structure was implemented from May 2014.
The board should have appropriate skills for Training is given priority status through compliance with CIPFA Knowledge and Partial
effective decision-making.
Skills Code of Practice for elected members and ongoing sessions provided Compliance
regularly through managers, collaboration and seminars.
A needs assessment process is to be introduced for members of the new
Committee.
There should be sufficient internal resources and The Committee has access to experienced and trained officers and an Advisory Full
access to external resources for trustees and Panel of professionals qualified to provide proper advice.
boards to make effective decisions.
.
There should be an investment business plan The investment business plan is included in the Fund’s Annual Service Plan which Full
with progress regularly evaluated.
is approved by the Committee who then receive updates on progress each
Committee.
The remuneration of trustees should be Remuneration and expenses are reviewed, considered and set by Council.
Full
considered.
Particular attention should be paid to managing The investment consultant, actuary and independent adviser all have contracts Full
and contracting with external advisers (including which are regularly reviewed. Performance of the investment consultant and
advice on strategic asset allocation, investment actuary will be monitored by the independent adviser.
management and actuarial issues).
The investment consultant and independent adviser contracts have been
tendered in 2013/14 and new provider contracts commenced in April 2014
125
Principle 2
Trustees should set out an overall investment objective(s) for the fund that takes account of the scheme’s liabilities, the strength of the sponsor
covenant and the attitude to risk of both the trustees and the sponsor, and clearly communicate these to advisers and investment managers.
Key Areas and Guidance
Comment & Actions
Compliance
Benchmarks and objectives should be in place for The Fund’s SIP sets out its investment and funding objectives as well as its
Full
the funding and investment of the scheme.
overall strategic customized benchmark, asset class targets and Conditional
Asset Allocation.
Fund managers should have clear written Fund managers operate to detailed written mandates based in the main on 3-year Full
mandates covering scheme expectations, which rolling performance targets, some market-based with others more absolute return
include clear time horizons for performance in nature. These are stated in the SIP.
measurement and evaluation.
Trustees consider as appropriate, given the size The Fund has always looked very widely at available asset classes and its Full
of fund, a range of asset classes, active or
extremely diversified structure reflects this. Whilst competitive deals are always
passive management styles and the impact of
sought with managers, fee levels have been less of a consideration on the
investment management costs when formulating grounds that, in optimizing structures, returns have always been considered on a
objectives and mandates.
net basis and that such costs are anyway offset by minimal additional
performance. Other fund costs are very carefully considered and monitored.
Trustees should consider the strength of the The Fund is effectively Government-backed but the Fund impact on stakeholders Full
sponsor covenant.
receives appropriate attention.
126
Principle 3
In setting and reviewing their investment strategy, trustees should take account of the form and structure of liabilities. These include the strength of
the sponsor covenant, the risk of sponsor default and longevity risk.
Key Areas and Guidance
Comment & Actions
Compliance
Trustees should have a clear policy on
Most managers have market-related benchmarks. There is clear acceptance of Full
willingness to accept underperformance due to
the fact that markets can be volatile in the short term. The setting of the Fund’s
market conditions.
strategic benchmarks is based upon the probable long-run performance of
specific asset classes. Similarly, whilst the Fund’s aim is that managers will
outperform their benchmarks at all times, periods of under-performance are
accepted as long as longer-term performance remains intact.
As noted above, in terms of changing managers, performance should not be the
sole criterion. The cost and timing of change possibly need to be recognized more
as key factors.
Trustees should analyse factors affecting long-
At each Fund Review exercise, optimization techniques are used that take Full
term performance and receive advice on how
account of probable performance and risk factors as well as asset class
these impact on the scheme and its liabilities.
correlations and the Fund’s actuarial position. The implementation of the flight-
path strategy now requires regular monitoring of the funding position
Such issues will be looked at again as part of the next Fund Structure review.
Trustees should take into account the risks
These risks are considered as part of the Fund’s flight-path strategy for managing Full
associated with their liabilities’ valuation and
funding risks such as interest rates and inflation. Each Fund Review exercise is
management.
aimed at achieving an overall long-term rate of return adequate to cover liability
growth (pay/price inflation, interest rate changes and mortality) and to return, in
time, to full funding status.
.
Trustees have a legal requirement to establish
Committee members receive regular independent reports from Internal Audit and Full
and operate internal controls.
External Audit on internal controls. Any actions recommended by these bodies
are actioned promptly.
Trustees should consider whether the
The Fund’s investment strategy is considered as part of the regular actuarial Full
investment strategy is consistent with the
process used to review and set employers’ rates of contribution and consistency
scheme sponsor’s objectives and ability to pay.
between the two is an important factor.
127
Principle 4
Trustees should arrange for the formal measurement of the performance of the investments, investment managers and advisors. Trustees should also
periodically make a formal policy assessment of their own effectiveness as a decision-making body and report on this to scheme members.
Key Areas and Guidance
Comment & Actions
Compliance
There is a formal policy and process for
The performance of the Committee is assessed by the Independent Adviser and Full
assessing individual performance of trustees
published in the Annual Report. In line with the SIP, the performance of the Fund
and managers.
and its fund managers is formally monitored by the Investment Consultant and
Officers.
.
Trustees should demonstrate an effective
Records of attendance at Committee and training events are maintained and Full
contribution and commitment to the role (for
reported in the Annual Report. Participation is recorded in the Committee minutes.
example measured by participation at
meetings).
The chairman should address the results of the All current performance evaluation documents (Training records, Independent Full
performance evaluation.
Adviser, risk, Audit) are brought to Committee. The Chairmen has a key role in
this and appropriate actions are agreed.
.
There should be a statement of how performance These are partly covered in the SIP and through specific reports to Committee but Partial
evaluations have been conducted.
there is no statement that brings all these together.
The independent adviser will address this as part of the annual review of
performance.
When selecting external advisers, relevant
Advisers are selected competitively, based on performance, price and other
Full
factors including past performance and price
factors.
should be taken into account.
.
128
Principle 5
Trustees should adopt, or ensure their investment managers adopt, the Institutional Shareholders’ Committee (ISC) Statement of Principles on the
responsibilities of shareholders and agents. A statement of the scheme’s policy on responsible ownership should be included in the Statement of
Investment Principles. Trustees should report periodically to members on the discharge of such responsibilities
.
Key Areas and Guidance
Comment & Actions
Compliance
Policies regarding responsible ownership should The Fund’s Sustainability Policy is included as part of the SIP. The Fund is also a Full
be disclosed to scheme members in the annual member of the Local Authority Pension Fund Forum (LAPFF) which considers
report and accounts or in the Statement of responsible investment on a collaborative basis.
Investment Principles.
Trustees should consider the potential for
In formulating investment strategy, the Fund is always mindful of sustainability Full
engagement to add value when formulating
issues and these are an increasing focus for the Fund across all asset classes.
investment strategy and selecting investment
Similarly, when appointing managers, questions are asked about engagement
managers.
and sustainability although this is probably not given sufficient weight in the
evaluation of managers for selection. To ensure best practice, the Fund has
produced its own Sustainability Policy which will need to be regularly monitored
and managed. In the future greater weight needs to be given to such matters in
the manager appointment process.
Trustees
should
ensure
that
investment A questionnaire has been issued to all fund managers on their sustainability
Full
managers have an explicit strategy, setting out policy and their replies explain their approach.
the circumstances in which they will intervene in
a company.
Trustees ensure that investment consultants The investment consultant adopts the ICS’s statement.
Full
adopt the ISC’s Statement
129
Principle 6
Trustees should act in a transparent manner, communicating with stakeholders on issues relating to their management of investment, its governance
and risks, including performance against stated objectives. Trustees should provide regular communication to members in the form they consider
most appropriate.
Key Areas and Guidance
Comment & Actions
Compliance
Reporting ensures that the scheme operates Details of the Fund’s Communication Policy Statement and all other key reports Full
transparently and enhances accountability to – SIP, Annual Report, Corporate Governance Policy Guidelines, Funding Strategy
scheme members and best practice provides a Statement, Governance Compliance Statement and Myner’s Principles
basis for the continuing improvement of Compliance Statement are all published on the Fund’s website. The Annual
governance standards.
Report, which incorporates many of these documents, is also available in hard
copy. A newsletter is also published periodically. The other two main sponsors
(Denbighshire and Wrexham) have representation on the Committee along with
an employee representative and other employer representative to ensure
transparency.
130
FRC STEWARDSHIP CODE 2014 / 15 COMPLIANCE
Principles
Comment & Actions
Compliance
Principle 1
Institutional investors should publicly disclose their The Clwyd Pension Fund takes its responsibilities as a shareholder seriously. Full
policy on how they will discharge their stewardship It seeks to adhere to the Stewardship Code and encourages its appointed asset
responsibilities.
managers to do so too. In practice the Fund’s policy is to apply the Code both
through its arrangements with its asset managers and other agents and through
membership of collaborative groups. The Fund makes this explicit in Section 7
of its Statement of Investment Principles (SIP) and through its recently
introduced Sustainability Policy document. The Fund’s investment strategy
seeks long-term returns from investing in a highly diversified portfolio of assets
and appoints asset managers who best reflect this long-term sustainability
approach in their investment philosophy and process.
Principle 2
Institutional investors should have a robust policy Through its Sustainability Policy, the Fund encourages the asset managers it Full
on managing conflicts of interest in relation to employs to have effective policies addressing potential conflicts of interest when
stewardship and this policy should be publicly it comes to matters of stewardship. The Fund requires all those who are directly
disclosed.
involved in its management and governance to disclose any interest in any
.
company, or other entity, in which the Fund has an ownership interest.
Principle 3
Institutional investors should monitor their investee Day-to-day responsibility for managing our equity holdings is delegated to the Full
companies.
Fund’s appointed asset managers. The Fund expects them to monitor
companies, and intervene where necessary, and to report back regularly on
activity undertaken. Quarterly review meetings with the Fund’s asset managers
provide an opportunity for particular company issues and, under the Fund’s
Sustainability Policy, managers will be required annually to report any areas of
concern.
131
Principles
Comment & Actions
Compliance
Principle 4
Institutional investors should establish clear Whilst there is broad guidance in the Fund’s SIP and Sustainability Policy, as Full
guidelines on when and how they will escalate their noted earlier, responsibility for day-to-day interaction with companies is
activities as a method of protecting and enhancing delegated to the Fund’s asset managers, including the escalation of
shareholder value.
engagement when necessary. Their guidelines for such activities are expected
to be disclosed in their own statement of adherence to the Stewardship Code.
Principle 5
Institutional investors should be willing to act The Fund seeks to work collaboratively with other institutional shareholders in Full
collectively with other investors where appropriate. order to maximize the influence that it can have on individual companies.
The Fund is a member of the Local Authority Pension Fund Forum (LAPFF),
which engages with companies on environmental, social and governance
issues on behalf of its member authorities. The LAPFF is signatory to the
United Nations Principles for Responsible Investing.
Principle 6
Institutional investors should have a clear policy on Whilst all the Fund’s holding are through pooled voting, it takes its voting Full,
but
voting and disclosure of voting activity.
responsibilities seriously and its voting policy is detailed as part of its SIP and further
in its Sustainability Policy document. Within this constraint, the Fund seeks to improvement
exercise the voting rights attaching to all its UK equity holdings and, where is possible
practical, its overseas stocks. Voting records are reported quarterly to the
Pension Fund Panel.
There is currently no disclosure on voting in the Funds Annual Report and
Accounts or on the Fund’s web site.
Principle 7
Institutional investors should report periodically on The Fund reviews its SIP and Sustainability Policy document on an annual Partial
their stewardship and voting activities.
basis and publishes these both in the Annual Report and Accounts and on the
Fund’s web site. In addition, the activity undertaken by the LAPFF is reported
quarterly to the Pension Fund Panel as are summary voting records from
managers.
However, there is currently no external publication of the Fund’s voting record
nor is there any retrospective review of stewardship generally.
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Communication Policy Statement
The Clwyd Pension Fund has had a Communications Policy Statement since April 2006. This
statement is reviewed and updated each year to ensure that there is a continual improvement in the
provision of information.
This statement outlines Clwyd Pension Fund’s policies concerning communications with the
following people and organisations:
Scheme Members
Prospective Members
Employing Authorities
Fund Staff
Other Bodies
Mission Statement
The Fund’s communication policy statement follows the principles of the Clwyd Pension Fund
Mission Statement which is identified as:
We will be known as forward thinking, responsive, pro-active and professional providing
excellent customer focused, reputable and credible service to all our customers
We will have instilled a corporate culture of risk awareness, financial governance, and will be
providing the highest quality, distinctive services within our resources
We will work effectively with partners, being solution focused with a can do approach
Diversity of Communication
All of the Fund’s communication material is bi-lingual and members are able to receive all personal
communications in Welsh should that be their preferred language.
The Clwyd Pension Fund’s correspondence is also available in alternative formats for example,
Braille, large print, BSL Video/DVD, audio tape and other languages on request.
The Clwyd Pension Fund’s aim is to use the most appropriate communication medium for the
audience receiving the information. This may involve using more than one method of
communication.
Communications with Scheme Members
Local Government Pension Scheme (LGPS) members include contributing members, deferred
members and pensioners. Each type of member receives different forms of communication
according to their individual needs.
Annual Benefit Statements – These statements are distributed annually to both contributing and
deferred members’ home addresses as per regulation requirements. The Clwyd Pension Fund
continues to use the format of pension figures and guidance notes combined in one user-friendly
booklet. In addition, the statement included a projection of State pension benefits at State pension
age for all LGPS members who elected to receive the information.
The format of the statements has been reviewed by the All Wales Group in line with the LGPS
regulations. The Annual Allowance (AA) information has been provided to members since 2012.
Newsletters – The Clwyd Pension Fund has a newsletter for contributing members entitled Penpal.
The purpose of this newsletter is to keep members up-to-date with any changes to the pension
scheme regulations.
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The Fund also sends a newsletter to its pensioners entitled Clwyd Catch Up. This is sent out with
the annual pensions increase notification and explains how their new annual rate of pension has
been calculated. It also includes topical information regarding the budget, State benefits etc.
Both newsletters are distributed to home addresses once a year.
Pensions Extra is an additional newsletter that the Clwyd Pension Fund uses to notify members of
urgent issues concerning LGPS. It is only published on an ad-hoc basis as and when required.
Presentations/Road-shows/Drop-in Sessions – The Clwyd Pension Fund offer LGPS road
shows, presentations, and drop-in sessions throughout the year.
The amount of visits to employers is likely to rise, due to a combination of departmental reviews and
the introduction of the 2014 Scheme.
2013/14 financial year saw the Clwyd Pension Fund carry out 24 days of drop-in sessions. These
sessions were used, not only to discuss individual member issues and also how the new pension
scheme works.
In conjunction with these drop in sessions, in preparation for the introduction of the LGPS2014
scheme, additional presentations were offered to all employers for their staff members. 10
presentations were given to a range of the Clwyd Pension Fund Employer’s staff members.
The information given out at these events is constantly reviewed to ensure that it is up-to-date and
takes into account any changes in the pension regulations. LGPS literature, ranging from scheme
booklets to death grant expression of wish forms, is always available at these events.
Pre-Retirement Courses – Fund Officers attend pre-retirement courses to inform members who
are approaching retirement age, about Local Government retirement procedures. Historically four
courses have been held per annum but, due to high demand, this has increased to six courses per
annum. The courses are still run in partnership with Gwynedd County Council. All course material
is reviewed in advance to ensure the information is up-to-date according to regulation changes.
In circumstances where there is a higher demand, courses are organised by Clwyd Pension Fund
Employers in addition to the ones held in collaboration with Gwynedd. A Fund officer also attends
these courses to give a presentation on LGPS and retirement procedures.
Website – All members have access to the Fund’s website which can be found at
www.clwydpensionfund.org.uk. The website was set up to provide comprehensive information
regarding the Local Government Pension Scheme and the Clwyd Pension Fund. It enables
members to download scheme literature and forms.
The website also has links to other useful websites, for example, the LGPS2014 official scheme
website, Prudential – our AVC provider, and the Department for Work and Pensions (D.W.P.)
Literature – Current pensions literature, available to scheme members include:
Short Scheme Guide to the Local Government Pension Scheme, which is sent to all members
upon joining the Clwyd Pension Fund. This booklet is amended as and when required.
Topping Up Your Benefits, which explains how members can pay extra contributions to
increase their benefits on retirement. This booklet is currently being reviewed and updated
where necessary.
Retirement pack sent to all members about to retire from the Clwyd Pension Fund.
Pensions Fact-sheets –
Several fact-sheets are available and are updated as and when pension
regulation changes make it necessary. They are produced on an All Wales basis. Most of the
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Welsh Pension Funds use the fact-sheets for general distribution to their LGPS members. The fact-
sheets are regarding:
Authorised Unpaid Leave
Changing Working Arrangements
Commutation
Pensions on Divorce or Dissolution of Civil Partnerships
Flexible Retirement
Ill Health Retirement
Maternity Leave
The Rule of 85
Pension Transfers
Pensions Taxation Correspondence – Correspondence was distributed in August 2014, to all
employers to feed to their employees who are high earners. It made clear their option to apply for
Fixed Protection on the Life Time Allowance from 18 August 2014, so that they can use £1.5m LTA
instead of reduced £1.25m
The Clwyd Pension Fund will continue to issue correspondence, so that our members are aware of
taxation rules including Annual Allowance. They can then take any action required to ensure they
do not have pension savings in excess of the Annual Allowance and have to pay a tax charge.
Facts & Figures – An extract of the Fund’s facts & figures for each financial year is included in the
Penpal newsletter so that contributing members have easy access to the Fund’s current financial
position.
Annual Report – The Annual Report is published to highlight how the Fund has performed during
the previous financial year. It also includes statements with regards to investment principles, funding
strategy, and governance.
Contacting the Clwyd Pension Fund – All members have the opportunity to telephone, fax, email
or visit the Clwyd Pension Fund for information in addition to the other lines of communication open
to them.
Communications with Prospective Members
Literature – Various literature is available to prospective members that promotes the Local
Government Pension Scheme and explains the scheme benefits. Booklets include:
Your Pension at Retirement, which is distributed to all new employees alongside their contract
of employment. This leaflet is updated each year and has recently been re-written.
Opted Out? Missing Out! Is sent to employees who request to opt out of the scheme. It
informs them of the benefits they may miss out on.
Induction Days – Flintshire County Council Corporate Training Unit organise induction days for
new employees. As part of these induction days, Clwyd Pension Fund is invited to give
presentations to prospective scheme members in order to promote the benefits of joining the Local
Government Pension Scheme. This service has also been offered to our other scheme employers.
Website – The Clwyd Pension Fund website address is advertised in all available literature and is
also mentioned in induction presentations so that prospective members can visit our website for
more information if they wish to do so.
Communications with Employing Authorities
AJCM – The Annual Joint Consultative Meeting is held every November and an invitation is
extended to employers and Union representatives. The Annual Joint Consultative Meeting offers
employers the opportunity to discuss the latest pension issues and to keep up-to-date with Local
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Government Pension Scheme regulations. The Annual Joint Consultative Meeting also includes a
presentation summarising the Fund’s annual report and accounts.
Individual Employer Meetings - Employers have the opportunity to meet with members of staff
from the Clwyd Pension Fund to discuss any issues with regard to the Local Government Pension
Scheme. These meetings take place as and when they are required.
Training Sessions – Training sessions are offered to both Payroll and Personnel departments
within each employer. The sessions include training on the Local Government Pension Scheme
regulations and administration procedures.
Service Level Agreements (SLAs) – Service Level Agreements were introduced in April 2007 in
order to improve best practice and also to comply with audit requirements.
The Service Level Agreement sets out, in detail, the obligations and responsibilities of both the
Employing and Administering Authorities concerning all aspects of Local Government Pension
Scheme administration. These Agreements are reviewed and updated annually.
Website – The Clwyd Pension Fund website is a vast log of information available 24 hours a day,
365 days of the year. All of the information on it is up-to-date and takes into account current LGPS
regulations.
The employing authorities also have their own website section that they can visit to find out how to
implement LGPS regulations. They are able to download password protected pensions forms which
must be completed by the employer in order for pension benefits to be calculated. The website’s
Employer section also has a ‘News Alerts’ feed. This allows the Clwyd Pension Fund employers to
stay up to date on urgent LGPS issues via the website.
Email Updates – Clwyd Pension Fund has an email distribution list of all employers. Regular emails
are sent to the group with updates on the LGPS. This email distribution list is also used to remind
employers of facilities available to them and their staff, i.e. pension presentations and drop-in
sessions.
The email distribution list is used to inform them when a news alert is added to the website.
Employer Bulletins – These are emailed to employers annually, normally in September. The
bulletin was created with a view to informing employers of important LGPS issues. It is also used to
summarise all of the LGPS changes for the past 12 months – to ensure that employers have not
missed any of these updates. The Clwyd Pension Fund retains the option to email additional
Employer Bulletins throughout the year if urgent information needs to be sent to our employers.
Communications with Pension Fund Staff
Clwyd Pension Fund Manager – The Clwyd Pension Fund Manager maintains an open-door policy
and attempts to make himself available to staff both within and outside the Pensions office.
Management Meetings – These are to assist the management team in planning ahead and
focusing on the next 12 months issues, for example staffing, workloads, and accommodation.
Team Leader Meetings - Weekly meetings for the Pensions Manager and the Team Leaders take
place to discuss day to day issues from all perspectives including priorities and procedures.
Communications Meetings – Monthly meetings for the Pensions Manager and the
Communications Officer. These are to discuss the current communication projects.
Technical Meetings – The Pensions Manager meets with both Technical Team Leaders. The
purpose is to discuss the current technical projects.
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Section Meetings – Office and/or Team Meetings are held on a monthly basis to discuss
operational issues. The purpose is to update the team on issues covered in the meeting mentioned
above.
Any items arising from any of the above meetings are escalated to the Clwyd Pension Fund Manager
and raised at Senior Management Team meetings when necessary.
Staff Training – The Clwyd Pension Fund ensures that all pension staff receive both in-house and
external training, with regard to pension matters, so that they are able to administer the scheme
effectively, answer member queries and offer a good customer service.
The Pensions Section staff attend various one day courses run by the Local Government
Association (LGA) regarding the LGPS as and when these courses are made available.
To develop a deeper knowledge, many pensions staff have completed a 2 year Local Government
Pension Scheme Diploma with the Chartered Institute of Pension and Payroll Professionals (CIPP).
A further member of staff is also currently undertaking a foundation degree.
Fund staff are encouraged to attend other training courses that will assist in their personal
development.
Communications with Other Bodies
Regional Forums – The Shrewsbury Pension Officers Group takes place quarterly. It is an
opportunity for the Pensions Managers and other Pension Officers from administering authorities in
the region to share information and ensure uniform interpretation of the Local Government Pension
Scheme, and other prevailing regulations.
Partnership Meetings with the 8 Pension Funds in Wales – The Pensions Manager regularly
meets representatives from the other 7 Pension Funds in Wales to discuss best practice and to
ensure that all the Welsh Funds have a consistent approach to their administration procedures.
In addition, all of the Communications Officers from the 8 Welsh Pension Funds meet on a regular
basis to share ideas about forms of communication. Some of the scheme literature that is produced
is on an “All Wales” basis.
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Independent Auditor's Statement to the Members of the Administering Authority of
Clwyd Local Government Pension Fund
I have examined the pension fund accounts and related notes contained in the 2013/14 Annual
Report of Clwyd Pension Fund to establish whether they are consistent with the pension fund
accounts and related notes included in the Statement of Accounts produced by Flintshire County
Council for the year ended 31 March 2014 which were authorised for issue on 24 September
2014. The pension fund accounts comprise the Fund Account and the Net Assets Statement.
Respective responsibilities of the Administering Authority and the Independent Auditor
The Administering Authority, Flintshire County Council, is responsible for preparing the Annual
Report. My responsibility is to report my opinion on the consistency of the pension fund accounts
and related notes contained in the Annual Report with the pension fund accounts and related
notes included in the Statement of Accounts of the Administering Authority. I also read the other
information contained in the Annual Report and consider the implications for my report if I become
aware of any misstatements or material inconsistencies with the pension fund accounts.
I conducted my work based on the requirements of Bulletin 2008/3 issued by the Auditing Practices
Board. My report on the pension fund accounts and related notes included in the Statement of
Accounts produced by Flintshire County Council describes the basis of my opinion on those
accounts.
Opinion
In my opinion the pension fund accounts and related notes included in the Annual Report of Clwyd
Pension Fund are consistent with the pension fund accounts and related notes included in the
Statement of Accounts produced by Flintshire County Council for the year ended 31 March 2014
which were authorised for issue on 24 September on which I issued an unqualified opinion.
I have not considered the effects of any events between the date on which I issued my opinion
on the pension fund accounts included in the authority's Statement of Accounts, 30 September
and the date of this statement.
Anthony Barrett
Appointed Auditor Wales
Audit Office 24 Cathedral
Road Cardiff
CF11 9LJ
5 November 2014
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