Contact: David Wilson, ext 7407

1. Introduction

1.1 At the Panel's meeting on 28 May 2004, it was reported that the Local Government Pension Scheme (Amendment) Regulations 2004 required local authority pension funds to prepare, publish and maintain a Funding Strategy Statement (FSS) by 31 March 2005. The Panel needs to consider and approve the Fund's first FSS now, as it must be in place before the actuary can formally complete the current actuarial valuation and certify new contribution rates to apply from 1 April 2005. A draft FSS for the Panel's approval is attached at Appendix 1.

1.2 An updated draft of the Fund's Statement of Investment Principles (SIP) is attached as an Annex to the FSS for the Panel's approval. It is suggested that this should be an integral part of the FSS, following comments received from other employers during the consultation process.

2. Drafting and consultation process

2.1 The regulations require the Fund to consult widely on the contents of the FSS with the Fund's actuary, Hewitt Bacon & Woodrow, and the Fund's member employers.

2.2 An initial draft was prepared by the County Treasurer with the assistance of Hewitt Bacon & Woodrow. It was circulated to the Panel members, all the Fund's employers, and also discussed at meetings of:

· The Hampshire and Isle of Wight Chief Financial Officers' Association on 10 September 2004;

· The Fund's Annual General Meeting on 21 September 2004; and

· The Association of Hampshire and Isle of Wight Local Authorities on 24 September 2004.

2.3 The main comment from the consultees on the draft originally circulated was that the FSS needed to say more about the investment strategy, rather than only cross-refer to the Statement of Investment Principles. Paragraph 4.13 of the FSS has been expanded to cover this point. Paragraph 1.3 of the FSS also states that the SIP will be attached to the FSS as an Appendix, and form an integral part of it.

3. Statement of Investment Principles

3.1 The Pension Fund's business plan provides for a review of its SIP by the Panel this November, and annually thereafter.

3.2 A revised draft of the SIP is attached as an Annex to the FSS. Significant changes are shown in italics.

4. Summary of changes

4.1 The main changes are:

· The employer and member numbers have been updated to reflect the position at 31 March 2004.

· It reflects the fact that the Pension Fund Panel now reports to the County Council via the new Governance Panel.

· It has been amended to show that £10m was placed with Deutsche on 1 January 2004 to be invested in ethically screened UK equity portfolio.

· It shows Savills' change of name to Cordea Savills.

4.2 The amendments to employer and member numbers and the paragraphs on Deutsche's new ethical portfolio were included in the version of the SIP published in this year's Annual Report to ensure consistency with the rest of that report.

4.3 The section on `Communications with Fund employers and members' will need to form a separate Communication Strategy Statement, if the new draft Local Government Pension Scheme and Management and Investment of Funds (Amendment) Regulations 2005 come into effect as planned (an item on the Agenda for the meeting on 23 November 2004). The `Responsible Committee' section in the SIP itself will also need to be expanded to include more detail on the Panel's operational procedures and arrangements for representation of the Fund's members and participating employers. These changes will be made when the Regulations have been finalised.

Recommendation

1 That the Panel approve the Funding Strategy Statement and updated Statement of Investment Principles.

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:

Published works.

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

TITLE FILE

None.