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Pension Fund Accounts

Fund Account See 2006/07 2007/08

note £'000 £'000

Dealings with members and employers

Contributions receivable

Employers - normal 4 121,117 136,433

Employers - special 4 4,631 6,466

Employers - additional 4 6 -2

Members - normal 4 44,126 46,281

Members - additional voluntary 4 1,203 1,441

Transfers in

Individual transfers in from other schemes 16,943 16,907

Benefits payable

Pensions 4 -96,783 -104,739

Commutation of pensions and lump sum retirement benefits 4 -22,870 -28,098

Lump sum death benefits 4 -1,989 -1,681

Payments to and on account of leavers

Group transfers out to other schemes 0 -960

Individual transfers out to other schemes -12,194 -13,111

Refunds of contributions -86 -53

State scheme premiums -9 4

Administrative expenses 5 -1,768 -1,877

Net additions (withdrawals) from dealings with members 52,327 57,011

Returns on investments

Investment income

Interest from fixed interest securities 7,223 4,622

Dividends from equities 55,815 57,837

Income from index-linked securities 46 49

Income from pooled investment vehicles 10,141 1,352

Net rents from properties 5,413 6,347

Income from property unit trusts 0 782

Income from other alternative investments 0 28

Interest on cash deposits 10,332 12,133

Other 142 589

Change in market value of investments

realised 315,414 99,767

unrealised -242,122 -192,634

Taxation -5,382 -3,931

Investment management expenses 5 -5,563 -9,490

Net returns on investments 151,459 -22,549

Net increase (decrease) in fund during the year 203,786 34,462

Add: Opening net assets of the scheme 2,713,627 2,917,413

Closing net assets of the scheme 2,917,413 2,951,875

Net Assets Statement See 31 March 2007 31 March 2008

note £'000 £'000

Investments at market value

Fixed interest securities 12 122,115 138,463

Index-linked securities 12 4,865 1,002

Equities 7, 10,12 1,734,964 1,699,486

Pooled investment vehicles 8,12 593,801 675,814

Property 12 110,950 117,050

Property unit trusts 27,898 67,749

Other alternative investments 1,052 52,153

Cash deposits 291,077 176,348

Total invested 2,886,722 2,928,065

Net current assets and liabilities

Contributions due from employers 11,003 10,865

Other current assets 21,848 16,172

Current liabilities -2,160 -3,227

Net assets - balance of fund 2,917,413 2,951,875

Reconciliation of net movement of assets of the fund

Opening net assets 2,713,627 2,917,413

Net income available for investment:

net additions from dealings with members' 52,327 57,011

investment income less expenses 78,167 70,318

Revenue surplus 130,494 127,329

Change in market value of investments 73,292 -92,867

Closing net assets 2,917,413 2,951,875

Notes to the Pension Fund Accounts

1 Operations and management

The Hampshire Pension Fund covers employees of Hampshire County Council, Portsmouth and Southampton City Councils and all district councils in Hampshire, except teachers, for whom separate arrangements apply. It also covers 192 other scheduled and admitted bodies.

Detailed Government regulations control rates of contribution and scales of benefits. Benefits are normally in the form of a lump sum and annual pension. In 2007/08, employees contributed £47.7m and employers £142.9m to the Fund. Contributions are calculated as a percentage of salary. As at 31 March 2008, 27,387 people were receiving pensions from the Fund.

A comprehensive review of the Fund's investment management arrangements in 2006/07 identified the need to diversify risks by increasing the number of specialist fund managers. At the end of 2007/08, the investments were managed by several companies based in London:

- Aberdeen Asset Management Limited 19.3%

- Newton Investment Management 12.4%

- Schroder Investment Management 11.2%

- Legal & General Investment Management 10.9%

- State Street Global Advisors 10.9%

- AllianceBernstein 10.5%

- SG Asset Management 7.2%

- Western Asset Management 4.8%

- CB Richard Ellis Investors 4.4%

- Goodman Property Investors 1.5%

The Fund also employs the services of Northern Trust as its global custodian.

The Pension Fund Panel directs the management of the Fund. It consists of nine county councillors. Co-opted to the Panel are also one representative of the two city unitary authorities (Portsmouth and Southampton), and one representative of the 11 district councils and other employers in Hampshire; both have full voting rights. Two representatives of the Fund's pensioners and contributors are co-opted to the Panel, also with full voting rights. There is also an independent adviser who attends Panel meetings. The Panel meets the managers regularly to discuss performance and approve their management strategies.

2 Accounting policies

Accounting standards

The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the UK 2007 issued by CIPFA. The accounts summarise the transactions and net assets of the Fund. They do not take account of future liabilities to pay pensions and other benefits. See note 3 for the actuarial position of the Fund, which does take account of such liabilities.

Basis of preparation

Income and expenditure are generally credited and debited to the revenue account when earned or incurred, not when received or paid (that is, on an accruals basis). However, transfer values paid and received have been included on a receipts and payments basis as recommended in the Pension Statement of Recommended Practice (SORP).

Additional voluntary contributions which are separately invested are not included in the Pension Fund Accounts in accordance with regulation 5(2)(b) of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 (SI 1998 No. 1831).

Investments

Investments are shown in the accounts at their market value, which has been determined as follows:

- FTSE-100 and Reserve List stocks are valued using the Stock Exchange Trading Service (SETS) last traded price

- other listed securities and securities on other domestic markets - mid-market price at the close of business on 31 March 2008

- unlisted securities - using latest dealings, professional valuations, asset values and other appropriate financial information

- investments held in overseas securities - mid-market price at the close of dealing on 31 March 2008 translated into sterling at the rate that day

- the UK property portfolio - open market value at 31 March 2008 as estimated by the Fund's property advisers.

Acquisition costs

The cost of acquiring property and securities includes brokerage commission, legal fees and stamp duty.

3 Actuarial position

Investment policy for the Fund is to maximise the growth in its value and to ensure that its future liabilities can be met while keeping employers' contribution rates stable.

The actuary completed a valuation of the Fund at 31 March 2007 during 2007/08. The actuary calculated that a phased increase in the employers' contribution rates would be necessary to meet the Fund's long-term liabilities. The rate was 17.7% of pensionable pay in 2007/08, 18.1% in 2008/09 rising to 18.6% in 2009/10 and 19.1% in 2010/11.

The next actuarial valuation of the Fund is due to take place as at 31 March 2010.

4 Contributions and benefits

The figures in the revenue account are broken down in the following table:

5 Administrative and investment management expenses

The figures in the revenue accounts are broken down in the following table:

6 Investment returns

The return on the Fund in 2007/08 was -0.9%.

In the three years to 31 March 2008, a return of 9.0% a year was achieved.

7 Ten largest equity holdings

At 31 March 2008 the ten largest equity (company share) holdings by market value were as follows:

8 Five largest pooled investment holdings

At 31 March 2008 the five largest pooled investment vehicle holdings were as follows:

9 Concentration of investments

During the year, no individual investment reached 10% of the value of the net assets of the Fund.

10 Analysis of UK equity investments by industrial sector

11 Unlisted investments

All investments held by the Fund at 31 March 2008 were listed on recognised stock exchanges, except the following:

£'000

Indirect European property 48,129

Private equity 34,678

Indirect UK property 19,620

Renewable energy 3,050

Other alternative investments 14,425

Total 119,902

These holdings represent 4.1% of the value of the Fund.

12 Investment transactions

The equivalent figures for purchases and sales in 2006/07 were £2,496.9m and £2,548.8m.

13 Contingent liabilities

The Fund had no contingent liabilities on 31 March 2008.

14 Capital commitments

The Fund had the following capital commitments at 31 March 2008:

Committed Invested at 31 March 2008

£'000 £'000

Private equity 68,844 13,521

Indirect European property 61,278 25,766

Renewable energy 9,880 2,962

Other alternative investments 29,807 4,874

Total 169,809 47,123

15 Property

All the Fund's directly owned property is held as freehold.

16 Independent property valuer

In December each year the directly held properties in the UK property portfolio are independently valued by Colliers CRE, chartered surveyors.

17 Rent reviews

All properties held in the UK property portfolio are subject to upward-only rent reviews every five years.