Contact: David Wilson, ext 7407

1 Introduction

1.1 At its meeting in November 2002, the Panel approved the Fund's first business plan, which included a section setting out the Fund's training policy for Panel members and County Council officers. An updated plan was agreed at the Panel's meeting on 26 November 2003. It included a commitment to "review and revise the business plan annually in November and ... evaluate performance against the action plan".

1.2 This report:

· Sets out an updated business plan.

· Looks briefly at performance against the action plan.

· Reports back on the training session held in October 2004.

· Gives updated information on further training courses available to Panel members.

1 The Business Plan

1.1 A draft update of the plan is attached at Appendix 1. Significant changes are shown in italics. Large parts of the plan approved last year remain appropriate and have not been altered. However, a number of significant changes and additions have been made:

· The proposed appointment of two new representatives on the Panel to represent the unitary city authorities and district councils is included (see item 6 on this Agenda).

· It states that a tender process is currently under way for the provision of actuarial and consultancy services for a five-year period from 1 April 2005, with an option to extend for a further five years to 31 March 2015.

· An updated action plan is shown for 2005/06 and 2006/07, including details of the review of the Fund's investment management arrangements to be completed by October 2006.

2 Performance against the action plan

2.1 The business plan approved in November 2003 listed a number of actions planned for completion in 2004/05 and 2005/06. These are listed below, with completion dates, or explanations where actions have been deferred:

· Make arrangements for the full actuarial valuation of the Fund as at 31 March 2004 - valuation now near completion. See item 17 on this Agenda.

· Review investment arrangements and seek any tenders for the provision of investment management services as required. See revised business plan at Appendix 1.

· Implement new investment arrangements. See revised plan at Appendix 1.

· Review the arrangements for the provision of AVC facilities by November 2004 - see item 18 on this Agenda.

· Seek tenders for the provision of actuarial services by November 2004. Now under way - see item 19 on this Agenda.

· Review the Statement of Investment Principles (SIP) - deadline November 2004 - updated SIP agreed by the Panel at its meeting on 3 November 2004.

· Review this business plan and progress against the action plan - completed by virtue of this report by the deadline of November 2004.

· Review management fees and transaction costs by November 2004 - see item 8 on this Agenda.

3 Capital International's training session held in October 2004

3.1 Capital International's training session for Panel members was held after the last Panel meeting on 8 July 2003. The programme for the session is shown in Appendix 2.

3.2 The presentations were well received by the Panel members and officers present.

4 Further training

4.1 Any new members of the Panel appointed after the 2005 County Council elections will need to undertake training, as will the new representatives for the city unitary authorities and district councils (see item 6 on this Agenda).

4.2 There are many courses and conferences available to Panel members who feel they need further training. A selection of courses currently available is attached at Appendix 3.

4.3 Any member who wishes to attend any of the courses listed should contact the County Treasurer, who will have copies of the brochures available at the meeting and can make the necessary arrangements.

Recommendations

1 That the Panel approve the revised business plan.

2 That the Panel note progress on the action plan.

3 That the Panel consider the courses listed in Appendix 3 and contact the County Treasurer if they wish to attend any of them.

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

None.

Appendix 1

Business plan

Mission and objectives

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. It is planned to co-opt two more members shortly, one to represent the two unitary city councils of Portsmouth and Southampton, and the other to represent the 11 district councils in Hampshire. There is also an independent adviser to the Panel, Mr Harvey Cole.

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.

The Panel's objectives

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

· To maintain a stable employers' contribution rate in the long term at around 200% of employees' contributions (subject to review after the outcome of the current actuarial valuation at 31 March 2004).

· 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.

The funding level and employers' contribution rate

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

· Drafting and maintaining a Funding Strategy Statement, in partnership with the Fund's actuary and participating employers. This sets out the background and parameters to be used by the actuary when carrying out actuarial valuations, and the duties of the County Council as administering authority and the Fund's other employers

· Commissioning a full actuarial valuation of the Fund every three years as required by law to determine employers' contribution levels - the statutory valuation as at 31 March 2004 is near to completion 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 help determine the optimum asset allocation needed to meet the Fund's liabilities

· Seeking tenders for the provision of actuarial and consultancy services - the current actuary is Hewitt Bacon & Woodrow whose contract terminates on 31 March 2005. Tenders are being sought currently for a five-year contract with effect from 1 April 2005, with an option to extend for a further five years subject to the provision of a satisfactory service. The outcome will be reported to the Panel in May 2005

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

Investment of the Fund

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

· Reviewing management arrangements prior to seeking tenders for the provision of investment management services, normally every seven years

· Reviewing the need for and performance of the ethically screened portfolio as necessary

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

· Reviewing Cordea Savills' performance at the Panel's meetings in the spring and autumn of each year - their contract runs until 31 May 2006 but can be extended by two years to 31 May 2008 if performance is satisfactory

· 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

· 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, and on other occasions as necessary.

Arrangements for the investment of additional voluntary contributions (AVCs)

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).

The current AVC providers for contributors to the Fund are Eagle Star and Equitable Life. The performance and options offered by these providers will be subject to review by the Panel as necessary.

Legislative changes

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 meeting any deadlines.

Consultation papers

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.

Best practice

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), the Chartered Institute of Public Finance and Accountancy (CIPFA) and other organisations specialising in pensions matters. It has delegated responsibility for achieving this to the County Treasurer.

Decision-making

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

· The Fund's external investment managers

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

Developments and training plan

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.

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.

Communications with participating employers and fund members

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.

Review and evaluation of business plan

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

Actions to March 2007

Implement the new employers' contribution rates from 1 April 2005 certified by the actuary following the full actuarial valuation of the Fund as at 31 March 2004

Commission actuary to carry out an asset/liability study - deadline for completion February 2005

Draft and incorporate a Representation Policy Statement to be included in the Fund's Statement of Investment Principles - deadline May 2005

Review the Fund's Statement of Investment Principles - deadline November 2005 - further review November 2006

Review the Fund's Funding Strategy Statement - deadline November 2005 - further review November 2006

Draft and approve a new Communication Policy Statement - deadline November 2005 - further review November 2006

Review this business plan and review progress against the action plan - deadline November 2005 - further review November 2006

Review the size of and need for the property portfolio - deadline May 2005 - further review in May 2006

Review management fees and transaction costs - deadline November 2005 - further review in November 2006

Review benchmarks and alternative management strategies, and agree new management structure to take effect in October 2006 - deadline November 2005

Seek tenders for the provision of investment management services as required by the new agreed management structure - deadline June 2006

Special Panel meeting to select new managers - July 2006

Implement new investment arrangements - deadline October 2006

Keep Panel members' training needs under review - ongoing

Respond as necessary to consultation papers on the new-look Local Government Pension Scheme being planned for 1 April 2008.

Appendix 2

Programme for training session by Capital International held on 27 October 2004

What to look for when assessing fund managers' performance (Neil Osborne and Antony Burgess)

Questions to ask when meeting fund managers (Neil Osborne and Antony Burgess)

Bond and equity allocations in pension funds (Neil Osborne)

Risk management (Antony Burgess)

Appendix 3

List of courses and seminars currently available

LGPS Fundamentals (notified to Panel members in Spring 2004)

Supplier: Local Government Pensions Committee

Officially approved by the Office of the Deputy Prime Minister

Full course takes 3 days

Annually

Only third day now available in 2004, but will be re-run in 2005 (dates to be announced)

Edinburgh 30 November 2004

London 8 December 2004

Cardiff 16 December 2004

Subject matter: duties and responsibilities of Panel members, changes to and future of the Local Government Pension Scheme, portfolio construction, risk and diversification, manager selection, managing relationships with managers. Specifically designed for councillors responsible for local government pension funds.

Trustees' essentials

Supplier: Hewitt Bacon & Woodrow

One-day course

London

25 January 2005

Subject matter: trustees' duties and responsibilities, trust law and pensions law, basics of investment management, risk management.

Current investment issues

Supplier: Hewitt Bacon & Woodrow

Half-day course

London

2005 dates to be determined

Subject matter: alternative investments (hedge funds, private equity), investment strategies, risk management, portfolio construction.

Managing investments

Supplier: Hewitt Bacon & Woodrow

Half-day course

London

2005 dates to be determined

Subject matter: Statements of Investment Principles, monitoring investments and their performance, meetings with fund managers, performance criteria, custody and governance, portfolio structure.

Fund management overview

Supplier: Investment Education plc

Three-day course

London

16-18 December 2004

Quarterly in 2005 - dates to be determined

Subject matter: fund management in detail, including the opportunity to manage a simulated portfolio.

Performance measurement workshop

Supplier: Investment Education plc

One-day course

London

Half-yearly in 2005 - dates to be determined

Subject matter: how performance is measured, benchmark choices, risk measures, interpretation.

How pension funds and their trustees think

Supplier: Investment Education plc

One-day course

London

2005 dates to be determined

Subject matter: kinds of pension schemes, current pensions issues, investment issues, recent pensions legislation, manager selection, performance measurement, actuarial valuations.

Local Authority investment training

Supplier: National Association of Pension Funds

One-day course

London

Two courses a year - 2005 dates to be announced

Subject matter: Local Government Pension Scheme legal background, investment powers, asset allocation and characteristics of asset classes, hiring and firing managers, corporate governance, environmental and ethical issues.

NAPF will also deliver tailor-made courses for individual county councils.

A selection of regular courses is also offered by the NAPF, including courses on trustees' duties and investment fundamentals. Dates for 2005 have not yet been fixed.

Local Government Chronicle - members' role in pensions seminar

Supplier: Local Government Chronicle

One-day seminar

Usually London

May 2005? - date to be announced

Subject matter: market outlook, performance measurement, discussion forum, the actuary's role, the Treasurer's role.

Courses run by Deutsche Asset Management

Half-day seminars

Several levels - introductory, advanced and "Chairman of Trustees" courses

Specialist investment courses

London

Fixed income investment 14 January 2005

Introduction to investment 18 February 2005

Advanced investment 8 April 2005

Property investment 13 May 2005

Equity investment 24 June 2005

Liability-driven investment 15 July 2005