Appendix 8

Hampshire Pension Fund - 2006/07 accounts

1 Introduction

1.1 This report presents the Pension Fund accounts for 2006/07.

2 2006/07 accounts

2.1 A draft revenue account for 2006/07 is shown in Annex 1 with equivalent figures for the previous year.

2.2 Employees' contributions rose by 6.7% compared with the previous year. Pay increased for all contributors by 2.95% from 1 April 2006. Average contributor numbers rose by 2.4% from 45,808 during 2005/06 to 46,930 in 2006/07. There was a 20% increase in the amount of additional contributions made by employees, which were not matched by employers' contributions.

2.3 Employers' contributions increased by 17.1%. These are assessed as a proportion of employees' contributions which rose by 6.7%. The remaining difference is explained by the fact that employers' contribution rates for scheduled bodies rose between 2005/06 and 2006/07 from 250% of employees' contributions to 275%, an increase of 10.0%. There was also a 10.4% increase in employers' contribution rates for admitted bodies from 240% of employees' contributions to 265%. The amount of early retirement charges paid by employers rose by 27%.

2.4 Transfer values received fell by 27.1% or £6.3m. The number of receipts actually fell between 2005/06 and 2006/07 by 18.8% from 1,123 to 912, but the average value of each receipt fell by 10.7%.

2.5 Pensions paid increased by 6.6%. Pensions were increased by 2.7% from April 2006. The number of pensions in payment rose during 2006/07 by 4.7% from 24,470 to 25,620.

2.6 There was a 46.7% increase in lump sums and benefits paid. These include deferred benefits going into payment, retirements and death grants. Changes in regulations effective from April 2006 allow members to commute part of their annual pension to increase their tax-free lump sum. This accounts for just under 15% of the increase. The number of lump sum payments increased by 11% and the average value of lump sums rose by 20%.

2.7 Transfer values paid fell by 40.7%. The number of payments fell between 2005/06 and 2006/07 by 30% from 624 to 435. The average value fall by 15%.

2.8 Administrative expenses increased by 8.8%. Charges for the services of the County Treasurer's Department are based on a fixed charge per fund member. Increased membership explains 5.5% of the increase. The remainder of the increase results from one-off expenditure on the AXISe employer module of some £40,000.

2.9 Investment management expenses increased by 25.8%. This rise in fees reflects higher costs from January 2007 following the increase in the number of fund management contracts as a result of the review of the Fund's investment management arrangements. Managers normally charge sliding scale fees based on portfolio value. These fall proportionally as portfolios increase in size, so a larger number of smaller portfolios will inevitably increase fund management fees.

2.10 Investment income rose by 12.7%. This was a result of increased dividend levels, particularly on UK equities.

3 Net assets statement

3.1 The net assets statement (or fund balance sheet) is also shown in Appendix 1.

3.2 The market value of investments rose during 2006/07 by 7.5%. The overall fund balance also rose by 7.5%. This reflects solid performance in the UK and European equity markets following three years of very good performance by all equity markets up to March 2006. Index returns in 2006/07 in the UK, US, Japanese and European equity markets were 11.1%, -0.9%, -9.9%, and 12.4% respectively. The index return on UK index-linked stocks was 2.7%.

3.3 Annex 2 contains a series of graphs showing trends in pension activities since 1977.

Recommendation

1 That the accounts for 2006/07 be approved.

Annex 1