Contact: David Wilson, ext 7407

1 Introduction

1.1 The Panel last reviewed the Fund's business plan in November 2004. It includes 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.

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:

· It has been updated to reflect the current structure of the Panel following the appointments of representatives for the unitary city councils and district councils.

· It states that Hewitt Bacon & Woodrow (Hewitt) were re-appointed as the Fund's actuary for a five-year period from April 2005, with an option to extend for a further five years.

· An updated action plan is shown for 2006/07 and 2007/08, including details of the review of the Fund's investment management arrangements to be completed by June 2006 for implementation in October 2006.

2 Performance against the action plan

2.1 The business plan approved in November 2004 listed a number of actions planned for completion in 2005/06 and 2006/07. Those planned to be completed by November 2005 are listed below, with completion dates, or explanations where actions have been deferred:

· Implement the new employers' contribution rates from 1 April 2005 certified by the actuary following the actuarial valuation at 31 March 2004 - completed.

· Commission actuary to carry out an asset/liability study - this work is complete - see item 17 on this Agenda and the report from Hewitt.

· Draft and incorporate a Representation Policy Statement to be included in the Fund's Statement of Investment Principles. Approved by the Panel by the deadline of May 2005. Amended version included for the Panel's approval at item 8 on this Agenda.

· Review the Statement of Investment Principles (SIP) - deadline November 2005 - see item 8 on this Agenda.

· Review the Fund's Funding Strategy Statement by November 2005 - no changes currently required.

· Draft and approve a new Communication Policy Statement by November 2005. Not actioned as regulations requiring this were not implemented and the current policy is fully explained both in the attached business plan and the Fund's Statement of Investment Principles.

· Review this business plan and progress against the action plan - completed by virtue of this report by the deadline of November 2005.

· Review the size and need for the property portfolio - new target value of £105m agreed by the Panel in June 2005.

· Review management fees and transaction costs by November 2005 - see item 13 on this Agenda.

· Review benchmarks and alternative management strategies and agree new management structure by November 2005 - see item 17 on this Agenda and report from Bramdean Asset Management.

· Keep Panel members' training needs under review - see item 10 on this Agenda.

Recommendations

1 That the Panel approve the revised business plan.

2 That the Panel note progress on the action plan.

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 nine county councillors, a member to represent the unitary city councils of Portsmouth and Southampton, a member to represent the 11 district councils, and two representatives of the Fund's pensioners and contributors. All Panel members have voting rights. There is also an independent adviser to the Panel, Mr Harvey Cole, who attends all Panel meetings.

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.

· 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 affecting 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 next statutory valuation will take place as at 31 March 2007

· arranging interim actuarial valuations if developments are such that the funding level can be expected to have changed significantly - an interim valuation following the revocation of the changes to the Scheme made from April 2005 was completed in September 2005, but this had no impact on employers' contribution rates

· commissioning an asset/liability study following valuations or as necessary to help determine the best 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 (Hewitt) who were re-appointed for a five-year period, with an option to extend for a further five years, following a tender process completed in spring 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 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 in the spring the size of and need for each manager's portfolio in the light of their performance in each financial 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 (Aberdeen, Schroders and SG Asset Management) are under review

· 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 annually in the spring the need for and size of the Fund's UK direct property portfolio (currently managed by Cordea Savills

· reviewing Cordea Savills' performance at the Panel's meetings in the spring and autumn of each year - their contract runs until 31 May 2006

· 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 summer and winter of each year, and on other occasions as necessary.

Arrangements for investing 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 Zurich 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

· other consultants.

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 annually updated employees' guide to the Scheme

· 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 2008

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

Select a global custodian for the Fund - May 2006

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

Special Panel meeting to select new managers - July 2006

Implement new investment arrangements - deadline October 2006

Review the Fund's Statement of Investment Principles - deadline November 2006 - further review November 2007

Review the Fund's Funding Strategy Statement (if necessary) - deadline November 2006 - further review November 2007

Review this business plan and review progress against the action plan - deadline November 2006 - further review November 2007

Review management fees and transaction costs - deadline November 2006 - further review in November 2007

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.