Contact: Ian Howell, (01962) 847540; email: [email protected]

1 Summary

1.1 The Government's ten principles for the management of final salary pension schemes requires funds to draw up a forward-looking business plan, including a training plan for both the trustees and officers involved in their management and administration.

1.2 The Hampshire Pension Fund's business plan includes a commitment to review and revise the plan annually, and to evaluate performance against the action plan. The Panel last reviewed the plan in November 2006.

1.3 This report:

· sets out an updated business plan

· looks briefly at performance against the action plan over the last year.

1 Recommendation

a) That, subject to any amendments the Panel may wish to make, the updated business plan be approved.

b) That the progress on the action plan be noted.

2 The business plan

2.1 A draft updated version of the business plan is attached as Appendix 1. Apart from the action plan section, few changes to the business plan are necessary. These changes are highlighted in Appendix 1.

2.2 Having completed the review of the Fund's investment management arrangements in 2006/07 and implemented the new management structure from January 2007, the focus should now switch to managing the Fund's future investment performance to achieve the returns required by the investment strategy. This has been reflected in the updated action plan.

2.3 The fund managers' targets are set for periods of three to five years so it will be a number of years before a definitive assessment of their performance can be made. However, as the business plan indicates, their performance over one-year periods will also be monitored. The Panel will be able to assess the results for the first full year to 31 December 2007 at its next meeting on 2 May 2008.

3 Performance against the action plan

3.1 The business plan approved in November 2006 included a number of actions for completion by March 2009. Progress against these action points are summarised below.

Section 100D - Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

NB: The list excludes:

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 the Pension Fund Panel through its Governance Committee. The Panel consists 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 are to:

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

· maintain a stable employers' contribution rate in the long term

· respond promptly to legislative changes affecting the Local Government Pension Scheme and pension provision generally

· comment fully on consultation papers dealing with pension matters in the interests of the Fund's participating employers and members within the deadlines set

· make sure that the Fund follows best practice as recommended by the Government, the Local Government Pensions Committee, the National Association of Pension Funds and other organisations specialising in pensions matters

· 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

· 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 latest statutory valuation as at 31 March 2007 is under way

· arranging interim actuarial valuations if developments mean that the funding level can be expected to have changed

· 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, agreeing employers' contributions 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. Hewitt advised after their most recent asset/liability study in 2005 that this means aiming to achieve an overall investment return 2.5% a year above that on a low-risk portfolio, defined as a portfolio invested 85% in index-linked gilts and 15% in fixed interest gilts. The Panel 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 and five-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 five years, with options to extend for a further five years subject to satisfactory performance, although all such appointments will be terminable at any time with one month's notice. Contracts will not normally be terminated in the first three years for below-target performance

· 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.

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 reviewed 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 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. In doing so it seeks to ensure high standards of corporate governance and best practice, and to further 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, the National Association of Pension Funds, the Chartered Institute of Public Finance and Accountancy 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 `Investor 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 2010

Set employers' contribution rates for April 2008 to March 2011 following the completion by the actuary of the actuarial valuation of the Fund as at 31 March 2007 - by December 2007.

Respond as necessary to Government consultation papers on the new-look Local Government Pension Scheme and put in place arrangements to implement the changes by 1 April 2008.

Amend and re-publish the Fund's governance policy statement, if necessary, and publish a governance compliance statement once the Government has confirmed its best practice principles for such statements - by 1 March 2008

Publish a pension administration strategy, following consultation with the other employing authorities, once the Government has issued guidance on the content of such strategies

Consider and, if appropriate, agree alternative investments as recommended by the Fund's advisers - ongoing.

Monitor the performance of the Fund's new management structure - ongoing.

Complete the following annual reviews - deadline November 2008, with a further review in November 2009:

- the Fund's Statement of Investment Principles

- the Fund's Funding Strategy Statement (if necessary)

- this business plan, including reviewing progress against the action plan

- the Fund's management fees and transaction costs.

Keep Panel members' training needs under review - ongoing.

Prepare for the next actuarial review of the Fund as at 31 March 2010.

i:\. . . .\ian\docs\penpanel 161107 business plan.doc