Archived decisions

Hampshire County Council

Pension Fund Panel

Item 8

23 May 2008

Additional voluntary contributions (AVC) - services provided by Zurich Financial Services Group

Report of the County Treasurer

Contact: Nick Weaver, (01962 847587) email: [email protected]

1 Summary

1.1 The purpose of this report is to provide an update on the provider of Hampshire's in-house additional voluntary contributions (AVC) scheme, the Zurich Financial Services Group.

1.2 Over the past 18 months, Zurich has been working closely with Pensions Services to make improvements to their provision of the in-house AVC scheme.

1.3 Progress to date includes:

    · improved, pro-active, member communications

    · increasing the available fund range

    · implementing a robust governance process

    · growing volumes (take up rates and amounts invested).

1.4 Zurich is continuing to improve their communication and administration processes and have plans to attend the new scheme presentations currently being held for members.

1.5 Zurich has introduced a quarterly `Scheme Governance Report'.

2 Recommendations

    a) That Pension Services contact members with investments "in remediation".

    b) That a further report on the Zurich AVC scheme is made to the Panel in May 2009, to include updated growth statistics and quarterly governance reports.

    c) That, following the report in May 2009, the Panel assess whether an external review of the AVC provider and fees is required.

3 Member communication

3.1 During 2007, Zurich provided 15 presentations to members, in three locations across the county. It also participated in two exhibitions in Southampton in April and May.

3.2 The focus since January 2008 has been on communicating the new scheme changes to employers but Zurich has now been invited to present a slot in the member presentations that have been arranged from April 2008.

3.3 Zurich has developed starter information to promote the AVC scheme:

    · flyers to be sent to new starters in the LGPS.

    · new joiner packs supplied to Hampshire County Council employees and used at seminars

3.4 Members can access their own AVC data on the Zurich website, using a PIN. This is already being used by some members and a promotional leaflet, containing details of how this works, will be included with the 2008 Zurich AVC annual benefit statements.

4 Fund choice

4.1 A comprehensive range of 63 funds is now available to members, including multi-region and multi-asset funds, as well as specialist funds. All the funds are provided by external managers (Aberdeen, BGI, Henderson, HSBC, JPM, Newton, Russell, Threadneedle and UBS).

4.2 Zurich also offers members a lifestyle option. This uses a combination of a global equity index tracker, corporate bonds and a `secure' fund to manage risk as the member approaches retirement. When the member is 5 years from retirement, their equity hold is gradually transferred into the lower risk products.

4.3 No Zurich funds are offered to LGPS members.

5 Administration changes

5.1 Zurich has worked with Pensions Services to improve the administration of the AVC scheme. It provides a website for LGPS members and anyone who is interested in starting AVCs now contacts Zurich directly for a starter pack (rather than Pensions Services).

5.2 Members also contact Zurich directly for any information they need when choosing or changing options.

5.3 Zurich offers the facility to provide bulk uploads of starter information. Pensions Services have not yet had the volume of starters needed to make best use of this option.

6 Governance

6.1 Zurich has introduced a quarterly `Scheme Governance Report' with effect from December 2007.

6.2 Under its governance procedures, Zurich monitor the performance of all of their funds. If the funds under-perform, Zurich takes remedial action. The three categories of under-performance and remedial action are shown in the table below.

Under - performance

Category

Remedial action

Failure to achieve benchmark performance for three out of the last four quarters

Close Monitoring

A formal letter (Request for Remedial Action) will be sent to the fund manager outlining the concerns and the required improvements. These `on watch' funds will then be closely monitored by the Fund Governance Director, the FWG (Funds Working Group) and the ZCP Management team. The Investment Committee will be notified.

A further twelve month period where in three out of the last four quarters, benchmark performance levels are not met

In Remediation

The Chair of the Investment Committee will (a maximum of twelve months later) issue a Formal Notice requiring improvement. The fund manager is then on the `In Remediation' list and will be required to submit a formal written response detailing the remedial action being taken.

Performance has not improved sufficiently by six months following the date of issue of the formal notice

Final Notice

If, six months following the date of issue of the formal notice, performance has not improved sufficiently, then the Investment Committee will convene and agree appropriate remedial action. There may be a range of actions available and each of these will be carefully considered by the Investment Committee. Zurich will consult with the Trustees (or Scheme Administrators where appropriate) of the schemes impacted and act in accordance with their instructions regarding any action they decide to take in relation to investment in the relevant fund.

6.3 It is recommended that if any contributors have investments in funds classified as `in remediation', Pensions Services contact the members to give them this information.

7 Volumes

7.1 There has been an increase in the take-up of the in-house AVC scheme.

7.2 Total Employee Voluntary Contributions in 2006/07 quarter three were £130,165.

7.3 For 2007/08 quarter three the Employee Voluntary Contribution were £226,394 (a 74% increase from the previous year).

7.4 The quarterly contribution rose to £283,326 in 2007/08 quarter four, a 25% increase on the previous quarter.

8 Future strategy

8.1 Zurich is continuing to work on improving its member communication and scheme administration processes.

8.2 It is suggested that a further report is made to the Panel in a year's time. This will contain updated statistics on take-up rates and process improvements. The Panel can then make an assessment as to whether an external review of fees and provider is appropriate.

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:

1

Published works

2

Documents which disclose exempt or confidential information as defined in the Act.

None.