Contact: David Wilson, ext 7407

1 Introduction

1.1 At its meeting in July 2002, the Panel considered a report on the Myners principles for the management of defined benefit schemes. The first principle on effective decision-making included a recommendation that pension fund trustees should draw up a forward-looking business plan to help them discharge their investment responsibilities.

1.2 The National Association of Pension Funds (NAPF) has since published further guidance on the matters such a business plan could cover. The following issues are identified:

· the missions and goals of the trustees and how these can be achieved

· how trustees ensure there is enough expertise available to make appropriate decisions

· a training plan

· the procedures for reviewing the suitability of the agreed investment structure and asset allocation

· the procedures for, and timing of, planned reviews of investment managers and other advisers

· any plans to re-evaluate the risk profile.

1.3 The Appendix to this report sets out a draft business plan for consideration by the Panel. It includes a training plan at Annex 1 which lists the topic areas that members of the Panel should have a working knowledge. It would be helpful if members would indicate those areas in Annex 1 for which they feel that further training would be helpful. A separate copy is enclosed with this Agenda for that purpose, to be returned to the County Treasurer.

1.4 Training courses on pension fund matters are organised by the fund managers and actuaries, including Hewitt Bacon & Woodrow. The County Treasurer will continue to circulate details of courses to Panel members as they arise.

1.5 The Local Government Pensions Committee (LGPC) are organising a three-day "LGPS Fundamentals" course for elected members in various locations (details attached as Appendix 2). The LGPC intend to run this course annually. It may be particularly suitable for newly appointed members of the Panel, but existing members may also wish to attend.

1.6 Deutsche have offered to provide trustees' training events in Winchester on specific subjects as required. The Panel may wish to consider whether a separate half-day meeting of the Panel in, say, May 2003 should be designated as a training day. This could include presentations by Deutsche and, perhaps, Hewitt Bacon & Woodrow. It would be possible to cover any training needs identified from completion of the Training Topics checklist enclosed with this Agenda.

Recommendations

1 That the Panel approve the draft business plan.

2 That the Panel members complete the Training Topics checklist enclosed with this Agenda.

3 That a separate half-day meeting of the Panel in May 2003 be organised as a training day.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

Appendix

Business plan

1 Mission and objectives

1.1 The County Council, as administering authority for the Hampshire Pension Fund, has delegated responsibility for the management of the Fund's investments to its Pension Fund Panel, consisting of eight county councillors and non-voting representatives of pensioners and contributors.

1.2 The Panel's mission is to provide an efficient and effective pension scheme for all employees and pensioners of all eligible employers in Hampshire, in accordance with the requirements of the legislation for the Local Government Pension Scheme.

1.3 The Panel's objectives are:

· To achieve a long-term 100% funding level, which means that all current and future fund liabilities can be met

· To maintain a stable employers' contribution rate at around 200% of employees' contributions

· To respond promptly to legislative changes affecting the Local Government Pension Scheme and pension provision generally

· To comment fully on consultation papers dealing with pension matters in the interests of the Fund's participating employers and members within the deadlines set

· To make sure that the Fund follows best practice as recommended by the Government, the Local Government Pensions Committee (LGPC), the National Association of Pension Funds (NAPF) and other organisations specialising in pensions matters

· To keep abreast of all developments affecting the Local Government Pension Scheme by undertaking training and/or taking advice from external fund managers, external consultants and County Council officers as appropriate

· To make arrangements for keeping the Fund's participating employers and members fully informed about matters which affect them.

1 The funding level and employers' contribution rate

1.1 The Panel seeks to achieve a 100% funding level and stable contribution rate by:

· Commissioning a full actuarial valuation of the Fund every three years as required by law to determine employers' contribution levels - the next statutory valuation will take place as at 31 March 2004 and will determine contributions payable in the three years commencing 1 April 2005

· Arranging interim actuarial valuations if developments are such that the funding level can be expected to have changed significantly

· Commissioning an asset/liability study following valuations or as necessary to assist with determining the optimum asset allocation needed to meet the Fund's liabilities

· Seeking tenders for the provision of actuarial and consultancy services every six years - the current actuary is Hewitt Bacon & Woodrow whose contract terminates on 31 March 2005 and tenders will be considered by the Panel in the autumn of 2004, and at six-yearly intervals thereafter

· Where an actuarial valuation reveals a past service deficit, employers' contributions will be agreed with the actuary to recover the deficit.

2 Investment of the Fund

2.1 The Panel seeks a return on the investment of the Fund which will enable 100% funding to be achieved and its liabilities to be met with a stable employers' contribution rate. It aims to achieve this by:

· Using the results of asset/liability studies and other analyses to set benchmark asset allocations and performance targets for external active investment managers

· Reviewing managers' performance against those targets over three-year rolling periods at Panel meetings held in the spring and autumn of each year - performance will also be monitored over one-year periods at those meetings

· Reviewing annually the size of and need for each manager's portfolio in the light of their performance in each financial year at Panel meetings to be held in the spring of each year

· Appointing investment managers for standard periods of seven years, although all such appointments will be terminable at any time with one month's notice. Contracts will not normally be terminated within the first three years for below-target performance alone - the current contracts for the three main fund managers (Deutsche, Schroders and SG Asset Management) are due to run until 31 December 2005

· Seeking tenders for the provision of investment management services every seven years over the nine-month period prior to the termination of the existing contracts - tenders will be considered by the Panel in September 2005

· Reviewing the current contract and future options for its ethically screened portfolio (currently managed by ISIS Asset Management) at the Panel's meeting in November 2002

· Considering the need for and size of the Fund's UK direct property portfolio (currently managed by Savills Fund Management) at a Panel meeting in the spring of each year

· Reviewing Savills' performance at the Panel's meeting on the autumn of 2005 - their contract runs until 31 May 2006 but can be extended by two years to 31 May 2008 if performance is satisfactory

· Monitoring the level of management fees paid in the previous 12 months to all the external fund managers at a Panel meeting in the autumn of each year

· Reviewing the level of transaction costs (brokerage and stamp duty) incurred in the previous 12 months by the external managers on the Fund's behalf in the autumn of each year

· Monitoring the external managers' use of soft commission arrangements (if any) in each calendar year at a Panel meeting in the spring of each year

· Delegating to the County Treasurer responsibility for monitoring the managers' performance between Panel meetings - the County Treasurer meets the managers in the summer and winter of each year.

3 Arrangements for the investment of additional voluntary contributions (AVCs)

3.1 The Panel aims to make sure that there is a wide and varied selection of high-performing investment options for fund contributors who wish to make additional voluntary contributions (AVCs).

3.2 The current AVC providers for contributors to the Fund are Eagle Star and Halifax Equitable Life. The performance and options offered by these providers will be subject to annual review by the Panel in May of each year.

4 Legislative changes

4.1 The Panel aims to respond promptly to legislative changes with implications for the management and administration of the Fund. It seeks to achieve this by:

· Closely monitoring new legislation affecting the Local Government Pension Scheme or pension provision generally - this role is delegated to the County Treasurer

· Considering reports on the implications for the Fund of relevant draft legislation

· Agreeing any actions necessary to ensure full compliance when the final legislation is enacted including any deadlines.

5 Consultation papers

5.1 The Panel aims to play an active role in responding to and commenting on consultation papers on pensions matters on behalf of fund employers and members, seeking to ensure high standards of corporate governance and best practice, and the best interests of contributors and pensioners.

6 Best practice

6.1 The Panel will ensure that the Fund follows best practice as recommended by the Government, the Local Government Pensions Committee (LGPC), the National Association of Pension Funds (NAPF) and other organisations specialising in pensions matters. It has delegated responsibility for achieving this to the County Treasurer.

7 Decision-making

7.1 The Panel will take advice as necessary to ensure that all decisions are made in the best interests of the Fund and its members. Advice is provided as necessary by:

· The County Treasurer and his staff

· The actuary, Hewitt Bacon & Woodrow

· The Fund's external investment managers

· The Fund's independent external consultant and sounding board, Harvey Cole.

8 Developments and training plan

8.1 The Panel aims to keep abreast of all developments affecting the Local Government Pension Scheme by undertaking training and/or taking advice when necessary from external fund managers, external consultants and County Council officers.

8.2 The Panel also expects the County Treasurer and relevant members of his department (who are the Panel's main advisers) to keep up-to-date with developments in pensions and investment matters and to undertake training as required. The County Treasurer's Department has been given the "Investors in People" award, which shows its commitment to identifying and providing for learning and development opportunities for its staff.

8.3 The attached Annex sets out a list of subject areas where knowledge is required.

9 Communications with participating employers and fund members

9.1 The Panel will make arrangements to keep the Fund's participating employers and members fully informed about matters that affect them by publishing:

· an Annual Report on the Fund for each financial year to be available for an Annual General Meeting of fund employers held in September of each following financial year

· an annual leaflet for the Fund's pensioners and contributors which will contain key information about the management and investment of the Fund, changes and developments in the Local Government Pension Scheme, service standards and contact points

· an updated employees' guide to the Scheme annually

· an annual newsletter to pensioners.

10 Review and evaluation of business plan

10.1 The Panel will review and revise the business plan annually in November and will evaluate performance against the action plan.

11 Actions for 2002/03 and 2003/04

11.1 The Panel will carry out the following actions in 2002/03 and 2003/04:

· Consider the need for an interim actuarial valuation of the Fund in the light of current market trends - deadline November 2002

· Review the performance of ISIS Asset Management's ethical portfolio and other ethical options - deadline November 2002

· Review the size of and need for each manager's portfolio in the light of performance - deadline May 2003 - further review in May 2004

· Review the arrangements for the provision of AVC investment facilities - deadline May 2003 - further review in May 2004

· Review training needs for Panel members - deadline May 2003

· Review the Fund's Statement of Investment Principles - deadline May 2003

· Review this business plan and review progress against the action plan - deadline November 2003

· Review the size of and need for the property portfolio - deadline May 2003 - further review in May 2004

· Review management fees, transaction costs and use of soft commission (if any) - deadline November 2002 - further review in November 2003

· Make arrangements for the full actuarial valuation of the Fund as at 31 March 2004

Annex 1

Hampshire Pension Fund Panel -Training Topics

Name: ................................................. Date completed: ......................