Appendix 7

Hampshire Pension Fund - 2004/05 accounts

1 Introduction

1.1 This report presents the Pension Fund accounts for 2004/05.

2 2004/05 accounts

2.1 A summary revenue account for 2004/05 is shown below with equivalent figures for the previous year.

2.2 Employees' contributions rose by 7.2% compared with the previous year. Pay increased for all contributors by 2.75% from 1 April 2004. Average contributor numbers rose by 4.6% from 43,191 during 2003/04 to 45,164 in 2004/05.

2.3 Employers' contributions increased by 11.8%. These are assessed as a proportion of employees' contributions which rose by 7.2%. The remaining difference is explained by the fact that employers' contribution rates for scheduled bodies rose between 2003/04 and 2004/05 from 215% of employees' contributions to 225%, an increase of 4.7%. There was no increase in employers' contribution rates for admitted employers.

2.4 Transfer values received fell by 7.2% or £1.3m. A third of private sector schemes have closed in recent years, so fewer recruits have rights to transfer here. The number of receipts fell during 2004/05 by 10.7% from 1,440 to 1,286, but the average value of each receipt rose by 3.9%.

2.5 Pensions paid increased by 3.5%. Pensions were increased by 2.8% from April 2004. The number of pensions in payment rose in 2004/05 by 1.2% from 23,297 to 23,586.

2.6 There was a 13.2% increase in lump sums and benefits paid. These include deferred benefits going into payment, retirements and death grants. The number of lump sums paid fell by 0.6% from 1,402 to 1,393. They are based on final year's pay which rose in 2004/05 by around 3%. Steps taken in 1998 to reduce the level of early retirements are also increasing the average length of service at retirement.

2.7 Transfer values paid fell by 17.3%. The number of payments fell in 2004/05 by 16.3% from 523 to 438, and the average value fell by 1.3%. As with transfer values received, many private sector pension schemes have closed in recent years, so fewer leavers can transfer to other schemes. Average values fell, as tighter restrictions on refunds have increased the proportion of low-value transfers in respect of ex-employees switching to other schemes.

2.8 Costs of administration rose by £0.3m (23.1%). A major factor was an increase in administrative costs associated with a 4.8% increase in the number of scheme members from 87,418 to 91,625. There was also a 12% increase in the charge per member made by the Pensions Services section, following a reduction of 4% in the previous year. The charge per member increased for two main reasons. First, annual benefit statements were issued to over 20,000 deferred pensioners for the first time. Second, substantial extra work was generated generally as a result of regulation changes in 2004 and preparation for such changes in 2005. There was also a one-off charge of £77,000 for the acquisition of a digital imaging scanning system, which will increase productivity and contain scheme membership workload increases in the future. There was also additional work for the section in processing part-time pensions claims.

2.9 Investment income rose by 15.2%. This was a result of increased dividend levels on both UK and overseas equities. Dividends on UK shares rose by 11.8% over 2003/04.

3 Net assets statement

3.1 The net assets statement (or fund balance sheet) is summarised below:

3.2 The market value of investments rose during 2004/05 by 11.7%. The overall fund balance rose by 12.2%. This reflects a continued recovery in most equity markets following three years of poor performance up to March 2003. Index returns in 2004/05 in the UK, US, Japanese and European equity markets were 15.6%, 4.5%, -4.3%, and 18.2% respectively. The index return on UK index-linked stocks was 5.7%.

3.3 Annex 1 provides a detailed analysis of fund holdings as at 31 March 2005. Annex 2 contains a series of graphs showing trends in pension activities since 1977.

Recommendation

1 That the accounts for 2004/05 be approved.

Annex 1 of Appendix 7

Pension Fund investments

Summary of holdings on 31 March 2005