Archived decisions

* In accordance with the Code of Practice, from 2008/09 the normal employers' contributions which relate to deficit funding are required to be separately identified, and investments are required to be valued at their fair value and where there is an active market the bid price is usually the appropriate quoted market price. The 2007/08 figures have been adjusted in order to provide comparative figures on the same basis as 2008/09.

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 the 11 district councils in Hampshire, except teachers, for whom separate arrangements apply. It also covers 191 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 2008/09 employees contributed £54.5 million and employers £152.3 million to the Fund. Contributions are calculated as a percentage of pensionable pay. As at 31 March 2009, 28,378 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. The aim is to match liabilities by having an asset allocation designed to produce returns of 2.5% a year above a low-risk bond portfolio. At the end of 2008/09, the investments were managed by companies based in London:

As a proportion of

Fund's overall value

- Aberdeen Asset Management Limited 18.0%

- Legal & General Investment Management 12.9%

- State Street Global Advisors 12.9%

- Newton Investment Management 11.7%

- Schroder Investment Management 9.9%

- AllianceBernstein 7.9%

- Western Asset Management 5.3%

- SG Asset Management 5.2%

- CB Richard Ellis Investors 4.3%

- Aberdeen Property Investors 2.0%

The Fund also employs the services of Northern Trust as its global custodian and Bramdean Asset Management as its adviser on alternative investments.

The Pension Fund Panel directs the management and administration 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 2008 issued by the Chartered Institute of Public Finance and Accountancy. 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.

In accordance with the 2008 Pension Statement of Recommended Practice (SORP), the 2007/08 investment figures have been restated at their fair value which has been taken as the bid price where there is an active market. The impact of this accounting change has been to reduce the reported market value of investments by £3.9 million, which in the context of the Fund's total assets at 31 March 2008 of £2.948 billion (as adjusted) is negligible.

Basis of preparation

The financial statements are prepared on an accruals basis. This means that income and expenditure is generally credited and debited to the revenue account when earned or incurred, not when received or paid. 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 - bid price at the close of business on 31 March 2009

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

- investments held in overseas securities - bid price at the close of dealing on 31 March 2009 translated into sterling at the rate that day

- the UK property portfolio - open-market value at 31 March 2009 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

The Scheme Regulations require that a full actuarial valuation is carried out every third year. The purpose of this is to establish that the Fund is able to meet its liabilities to past and present contributors and to review employer contribution rates.

The last full actuarial investigation into the financial position of the Fund was completed as at 31 March 2007, which showed that the funding ratio of the Fund had improved since the previous valuation with the market value of the Fund's assets at that date (of £2.918 billion) covering 77% of the liabilities allowing, in the case of current contributors to the Fund, for future increases in pensionable remuneration.

The actuarial calculations identified a required level of contributions to be paid to the Fund by participating employers of 19.1% to meet the Fund's long-term liabilities. It was agreed to phase this increase from its previous rate of 17.7% of pensionable pay in 2007/08 as follows: 18.1% in 2008/09, rising to 18.6% in 2009/10 and 19.1% in 2010/11.

The employers' contribution rates were calculated using the projected unit actuarial method, which is consistent with the aim of achieving the 100% funding level described above.

The main actuarial assumptions used for the March 2007 actuarial valuation were as follows:

Discount rate for periods

In service

Admitted bodies 6.20% a year

Scheduled bodies 6.20% a year

Left service

Admitted bodies 5.20% a year

Scheduled bodies 6.20% a year

Short-term investment returns until 1 April 2011

Equity / property assets 7.05% a year

Other investments 5.20% a year

Rate of general pay increases 4.70% a year

Rate of increase to pensions in payment 3.20% a year

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:

The funding objective is to achieve and maintain a funding level of 100% of liabilities. For this reason, a certain proportion of employer contributions received will be used to reduce an existing deficit. The 2007 Actuarial Valuation stated that the deficit could be eliminated by improving the funding of the Scheme for a period of 25 years from 1 April 2008. In accordance with the 2008 Pension Statement of Recommended Practice (SORP), the normal employers' contributions which relate to this deficit funding have been separately identified in 2008/09 and the 2007/08 normal employers' contribution figure has been similarly split for comparative purposes.

5 Administrative and investment management expenses

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

6 Taxation

The Fund is exempt from UK income tax on interest received and from capital gains tax on the proceeds of investments sold. Income from overseas investments suffers a withholding tax in the country of origin, unless exemption is permitted as in the United States, Australia, and the Netherlands.

7 Investment returns

The return on the Fund in 2008/09 was -19.7%.

In the three years to 31 March 2009, a return of -5.7% a year was achieved.

8 Ten largest equity holdings

At 31 March 2009 the ten largest equity (company share) holdings by market value were as follows:

9 Pooled investment vehicle holdings

At 31 March 2009, pooled investment vehicle holdings comprised the following:

10 Concentration of investments

During the year, no individual investment exceeded 5% of the total value of net assets of the Fund.

11 Analysis of UK equity investments by industrial sector

12 Unlisted investments

All investments held by the Fund at 31 March 2009 were listed on recognised stock exchanges, except the following:

£'000

Indirect European property 50,137

Private equity 52,679

Hedge fund 20,066

Indirect UK property 12,781

Renewable energy 4,402

Other alternative investments 28,532

Total 168,597

These holdings represent 7.0% of the value of the Fund.

13 Investment transactions

14 Contingent liabilities

The Fund had no contingent liabilities on 31 March 2009.

15 Capital commitments

The Fund had the following capital commitments at 31 March 2009:

Committed Invested at

31 March 2009

£'000 £'000

Private equity 102,612 39,171

Indirect European property 51,908 29,020

Renewable energy 9,880 4,688

Other alternative investments 57,940 22,778

Total 222,340 95,657

16 Property

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

17 Independent property valuer

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

18 Rent reviews

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