Statement of Accounts 2015/16

Transcription

1 Statement of Accounts 2015/16 1

2 CONTENTS Page Narrative Report 3 Statement of Responsibilities for the Statements of Accounts 8 Annual Governance Statement 9 Auditor s report to the LPFA 13 Pension Fund Accounts 18 Notes to Pension Fund Accounts 21 Actuarial Statement 50 Participating Employers 51 Operational Accounts 59 Notes to Operational Accounts 65 Residual Liabilities Accounts 92 Notes to Residual Liabilities Accounts 97 2

3 1 Narrative Report Format of the Statement of Accounts The primary function of the London Pensions Fund Authority (LPFA) is as an Administering Authority within the Local Government Pension Scheme. The LPFA s Statement of Accounts for the financial year 2015/16 consists of: the Statement of Responsibilities the Annual Governance Statement three separate sets of financial statements: The Pension Fund accounts, consisting of; the Fund Account which shows the Fund s income and expenditure for the year the Net Assets Statement which shows the net assets of the Fund at 31 st March 2016 Notes to support the Pension Fund accounts The Operational Account and Residual Liabilities statements consist of: the Comprehensive Income and Expenditure Account which is a summary of the resources generated and consumed by the LPFA in the year. The statement shows the accounting costs in the year of providing services in accordance with the generally accepted accounting practices. The LPFA does not raise taxation to cover expenditure. The Balance Sheet which sets out the financial position of the LPFA at 31 st March The Balance Sheet shows the value as at the Balance Sheet date of the assets and liabilities recognised by the LPFA. The net assets of the LPFA (assets less liabilities) are matched by the reserves held by the LPFA. the Cash Flow Statement shows the changes in cash and cash equivalent assets of the LPFA during the reporting period. The statement shows how the LPFA generates and uses cash and cash equivalents by classifying cash flows as operating and financing activities. The overall total agrees to the Cash position shown in the balance sheet. the Movement in Reserves Statement shows the movement in the year on the different reserves held by the LPFA. Notes to support the accounts. Relationship to LPFA s Annual Report A copy of the LPFA s Statement of Accounts is issued as a financial report and forms part of the LPFA s Annual Report and Accounts, together with the other statutory documents and other information in line with best practice guidance. 3

4 Funding The LPFA incurs costs in the discharge of its functions as the administering authority of the Fund. These costs are detailed in the Operational Account. In accordance with the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 (SI 1998/1831) as amended, the LPFA charges its costs to the Fund under its management as they are incurred and there is no formal recharge procedure. Any costs, charges and expenses incurred in administering the Residual Liabilities are met by the Levy on the Greater London and Inner London authorities. Review of the Statements The 2015/16 budget had initial approval from the Board in December 2014 and was submitted to the Mayor of London for comment. The final budget was approved by the Board on 3 rd February The budgets are monitored by budget holders and managers on a monthly basis with formal reporting to the Corporate Management Team and Board also on a monthly basis. The outturn of each reporting statement is summarised below. Pension Fund Pension Fund Actual Budget Variance Dealings with members and employers Contributions (160,151) (159,200) (951) Transfers in (36,265) (25,300) (10,965) Benefits Payable 241, ,800 (8,490) Transfers out 30,716 25,700 5,016 Net dealings with members and employers 75,610 91,000 (15,390) Management Expenses Investment management 30,651 29, Administration 4,685 4, Oversight & Governance 3,082 3,100 (18) Capital Funding Cost (169) 0 (169) Total Management Expenses 38,249 37, Returns on Investments Investment Income (48,164) (51,700) 3,536 Changes in market value 30,379 (222,800) 253,179 Total return on investments (17,785) (274,500) 256,715 Net (Inflow)/Outflow to the Fund 96,074 (146,100) 242,174 4

5 Returns on investments were less than budgeted, however future budgets have been set in order to achieve challenging future targets and the move to the Local Pensions Partnership should assist in this area as it opens additional investment routes for The Authority. More details can be found in the Funding Strategy Statement. Operational budget Operational accounts Actual Budget Variance Administration Pensions Administration 1,059 1,058 1 Pensions Agency (138) (290) 152 Pensions Payroll Employers Services Technical Services (51) HR Service IT Service 708 1,014 (306) Marketing/Communications Value Added Business (107) 0 (107) Premises 918 1,004 (86) Total Administration 4,442 4,579 (137) Oversight & Governance Board (74) Executive Committee Corporate Governance Finance Investments Team Recharge 401 1,323 (922) Other Corporate costs 1, ,126 Strategic Project Total Oversight & Governance 4,195 3, Total Operational Costs 8,637 8, Funded by: Charge made to pension fund (8,077) (7,661) (416) Recharge to residual liabilities (641) (641) 0 Movement in reserves (169) (45) (124) Total Funding (8,887) (8,347) (540) Net (surplus)/deficit (250) 0 (250) The actual expenditure excludes adjustments for IAS19 Employee Benefits charges as these do not form part of the usual management accounting process. Although included in expenses these charges are reversed out later and do not have a direct impact on the bottom line. The investments team recharge shows a significant variance due to staff 5

6 savings and a reduced bonus scheme. Other Corporate Costs are showing a significant overspend due to capital funding requirements and investments staffing costs being paid from the operational account, although these were recovered in additional funding. Whilst operational costs have increased from 2014/15 this was expected with the strategic decision to move into the Local Pensions Partnership, having succeeded with this strategic goal it is expected to bring cost benefits in this area in future years. Residual Liabilities LPFA is responsible for compensation payments in respect of former Greater London Council (GLC), Inner London Education Authority (ILEA) and London Residual Body (LRB) staff. These payments are not chargeable to the pension fund and are recovered by a levy on London boroughs. These budgets contain significant uncertainties in the form of injury claims for asbestosis, dating back to the GLC and ILEA. The LPFA has established a significant provision for known and expected claims, the costs of which will be met through the levy on London boroughs. Greater London The budgeted levy requirement in 2015/16 was 10,318k. Pension costs were lower than expected and there have been changes made to the asbestosis provision. However it remains extremely difficult to forecast the sums likely to be paid, both in year and over the longer term, on dealing with asbestosis claims. The LPFA has engaged an expert advisor to support the management of claims as they are submitted, and to agree estimates of future claims. Greater London Levy Actual Budget Variance Pension Retirement Costs 7,168 7,483 (315) Management Expenses Asbestosis Provision (known cases + direct costs) 1,823 1, Interest Payable and Receivable (29) (63) 34 Levy (10,318) (10,318) 0 Net (Inflow)/Outflow to Balances (1,083) (983) (100) Inner London The budgeted levy requirement in 2015/16 was 13,065k. As with the Greater London budget pension costs were lower than expected. The asbestosis provision spending was also significantly over budget. However, again as on the Greater London levy, the asbestosis claims remain a significant variable factor and this led to an increase in the asbestosis provision. Inner London Levy Actual Budget Variance Pension Retirement Costs 11,603 11,784 (181) Management Expenses Asbestosis Provision (known cases + direct costs) Interest Payable and Receivable (0) (10) 10 Levy (13,065) (13,065) 0 Net (Inflow)/Outflow to Balances (510) (740) 230 6

7 Pension Liabilities The financial statements disclose the cost of providing retirement benefits and related gains, losses, assets and liabilities under IAS 19. The LPFA has substantial pension liabilities that it has to pay to its members. It currently pays pensioners and has an obligation to pay active and deferred members in the future. Whilst the Pension Fund statements disclose IAS 19 details a liability is recognised in both the Operational and Residual Liabilities statements. The Local Government Pension Scheme (LGPS) was updated in the review of public sector pensions. The new LGPS was introduced on 1 April 2014, this included a move to career average linked pension rather than final salary, members were given the option to pay contributions at half rate and member contribution rates were changed. Creditor payment policy LPFA s current policy concerning payments to suppliers of goods and services is to follow the Prompt Payers code. It is the LPFA s practice that suppliers are paid on time in accordance with their terms and conditions (based on invoice receipt date) or within 30 days of receipt. Accounting Policies LPFA prepares its accounts under International Financial Reporting Standards (IFRS), in line with other public sector bodies, specifically under the CIPFA Code of Practice on Local Authority Accounting in the United Kingdom Date the Statement of Accounts were authorised for issue The Statement of Accounts were authorised for issue by the Audit and Risk Committee on 29 September Post balance sheet events have been considered up to the date the accounts were signed off by the auditor. Further Information Further information about these accounts is available from the Head of Finance, 2 nd Floor, 169 Union Street, London SE1 0LL. In addition further information on the LPFA performance in service and corporate areas can be seen alongside a summarised version of the accounts in the LPFA Year in Review document which can be requested at the address above. 7

8 2 Statement of Responsibilities for the Statement of Accounts LPFA s responsibilities LPFA is required to: Make arrangements for the proper administration of its financial affairs and to ensure that one of its officers has responsibility for the administration of those affairs (the Section 151 officer ). On 1 st August 2015 the Section 151 Officer responsibilities transferred from the Chief Finance and Risk Officer to the Head of Finance. Manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets Approve the Statement of Accounts The LPFA Head of Finance Reports to the Chief Risk and Finance Officer who is responsible for advising the Board and Executive on Risk and Financial Matters. The Section 151 Officer s responsibilities At LPFA the Section 151 Officer is responsible for: The preparation of the LPFA s Statement of Accounts in accordance with proper accounting practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom Keeping proper financial records and accounts and maintaining an effective system of financial control Publishing annual accounts on a timely basis In preparing this Statement of Accounts, the Section 151 Officer has: Selected suitable accounting policies and applied them consistently Made judgments that were reasonable and prudent Taken reasonable steps for the prevention and/or detection of fraud and/or other irregularities Certificate of Approval I certify that the statement of accounts presents a true and fair view of the financial position of LPFA at 31 March 2016 and its income and expenditure for the year ended 31 March Tricia Clark, Section 151 Officer Date: 29 September

9 3 Annual Governance Statement 2015/16 Introduction The London Pensions Fund Authority (LPFA) was established following the abolition of the Greater London Council (GLC) and the Inner London Education Authority (ILEA) to take on the pension responsibilities under the Local Government Pension Scheme (LGPS). The LPFA has sought new employers into its fund to ensure its sustainability and today it has over 356 employers paying contributions into the fund. The LPFA manages the pension fund assets, which total approximately 4.6bn, and administers the LGPS for its members, which total just under 79,000. During 2015/16, the LPFA also used the expertise gained in administering its own scheme to provide services to other local authorities, including three London boroughs, a county council and three fire authorities. With these third party contracts the LPFA provided administration services to just over 260,000 members of the LGPS or Fire Pension Scheme. LPFA has been a long term supporter of LGPS reform with the aim of driving efficiencies and benefits of scale in pension fund management. During this culminated in the development of a partnership with Lancashire County Pension Fund (LCPF). LPFA became a 50% owner of the Local Pensions Partnership, which is a pensions services organisation offering investment management, pension administration and risk management services. From 8th April 2016, the majority of the LPFA s functions have been delegated to the Local Pensions Partnership (LPP) under a Service Level Agreement. LPFA will be using its position as an active shareholder of the LPP to drive the effective implementation of the partnership and seek to assist, where possible, to facilitate the growth in LGPS collaborations. The responsibilities of the Board will remain; however, the implementation of the Board s policies is being carried out by the LPP. This is a new approach for the LPFA and one which requires effective monitoring and oversight of the LPP. Scope of Responsibility The LPFA is responsible for ensuring that its business is conducted in accordance with the law and proper standards, and that public money is safeguarded and properly accounted for, and used economically, efficiently and effectively. The LPFA also has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness. In discharging this overall responsibility, the LPFA is responsible for putting in place proper arrangements for the governance of its affairs, facilitating the effective exercise of its functions, and including arrangements for the management of risk. 9

10 Local Code of Corporate Governance The LPFA has approved and adopted a Local Code of Corporate Governance, which is consistent with the principles of the CIPFA/SOLACE Framework Delivering Good Governance in Local Government. A copy of the code is posted on the LPFA website ( The LPFA s Local Code of Corporate Governance was reviewed and updated in June This statement sets out how the LPFA has complied with the code and also meets the requirements of the Accounts and Audit Regulations 2003, 2006, 2011 and 2015, in relation to the publication of a statement on internal control. The Purpose of the Governance Framework The governance framework comprises the systems and processes, and culture and values, by which the LPFA is directed and controlled and the activities for which it is accountable. It enables the LPFA to monitor the achievement of strategic objectives and to consider whether those objectives have led to the delivery of appropriate, costeffective services. The system of internal control is a significant part of that framework and is designed to manage risk to a reasonable level. It cannot eliminate all risk of failure to achieve policies, aims and objectives and can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an on-going process designed to: identify and prioritise the risks to the achievement of the LPFA s policies, aims and objectives, evaluate the likelihood of those risks being realised and the impact should they be realised, and manage them efficiently, effectively and economically. The governance framework has been further enhanced during the year ended 31st March 2016 and actions taken and planned are identified below. This continued to be reviewed up to the date of approval of the Annual Report and Statement of Accounts. The Governance Framework The key elements of the systems and processes that comprise the LPFA s governance arrangements are set out in LPFA s Local Code of Corporate Governance which is available on LPFA s website The Code of Corporate Governance provides more details on: LPFA s vision, objectives and decision making process Committee structures, performance measurement and how use of resources is monitored 10

11 Counter fraud, risk management and conflicts of interest policies Officer specific functions, including the roles of both the s151 Officer and the Monitoring Officer Arrangements in place to ensure the effective financial monitoring and use of resources The role of the Audit & Risk Committee and whistleblowing procedures The Local Pension Board and its remit. The Local Code of Governance was updated in June 2016 to reflect the enhancements implemented during year. Actions for The Annual Governance Statement for the reporting period contained a number of action points to be completed during Progress against these actions is provided below. The monthly Financial Monitoring Report has continued to develop and is now presented in three separate reports solvency, cashflow and investment reports. The infrastructure partnership arrangement with Greater Manchester Pension Fund (GMPF and LPFA Infrastructure LLP) has progressed, with initial investments made and governance arrangements established. Governance arrangements have been managed appropriately for all investment subsidiaries. A solution for the pension fund deficit attributable to the former GLC/ILEA continues to be discussed with the relevant stakeholders. The Local Pensions Partnership (LPP) and Group subsidiaries were established in partnership with LCPF and discussion continued in respect of adding further partners. The Local Pension Board was established and fully operational from April 2015; this was a significant achievement and a robust challenging board is in place. Various governance improvements include updates to the Constitutional Document, a Board performance evaluation and a review of Responsible Investment activities, which resulted in the formation of a Stewardship Committee. These are discussed in more detail in the Governance Section of the Pension Fund Annual Report (available on our website). Actions planned for The following actions in relation to governance and monitoring are planned for : 11

12 Working as an active shareholder in the Local Pensions Partnership in order to hold LPP to account and monitor its performance. Focus on transparency & engagement with stakeholders Continued discussions regarding further participants in the services provided by the LPP Group. Continuing to raise standards in line with FCA, The Pension Regulator and UK Corporate Governance Code standards. Reviewing LPFA s public policy statements and governance policies Ensuring that an active shareholder position is taken with the LPP and that the LPFA and LPP work together to effectively manage internal audit governance arrangements. We propose over the coming year to take steps to address the above matters to further enhance our governance arrangements. We are satisfied that these steps will address the need for improvements that were identified in our review of the effectiveness and will monitor their implementation and operation as part of our next annual review. Signed... Mike Allen, Managing Director Dated: 29 September 2016 Signed... Sir Merrick Cockell, Chairman Dated: 29 September

13 4 Independent Auditors report to the members of London Pensions Fund Authority We have audited the pension fund financial statements of London Pensions Fund Authority (the "Authority") for the year ended 31 March 2016 under the Local Audit and Accountability Act 2014 (the "Act"). The pension fund financial statements comprise the Fund Account, the Net Assets Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2015/16. This report is made solely to the members of the Authority, as a body, in accordance with Part 5 of the Act and as set out in paragraph 43 of the Statement of Responsibilities of Auditors and Audited Bodies published by Public Sector Audit Appointments Limited. Our audit work has been undertaken so that we might state to the members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Authority and the Authority's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Section 151 Officer and auditor As explained more fully in the Statement of the Section 151 Officer Responsibilities, the Section 151 officer is responsible for the preparation of the Authority s Statement of Accounts, which includes the pension fund financial statements, in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2015/16, which give a true and fair view. Our responsibility is to audit and express an opinion on the pension fund financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the pension fund financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the pension fund s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Section 151 Officer; and the overall presentation of the pension fund financial statements. In addition, we read all the financial and non-financial information in the Authority's Statement of Accounts to identify material inconsistencies with the audited pension fund financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If 13

14 we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on the pension fund financial statements In our opinion the pension fund financial statements: present a true and fair view of the financial transactions of the pension fund during the year ended 31 March 2016 and of the amount and disposition at that date of the fund s assets and liabilities; and have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2015/16 and applicable law. Opinion on other matters In our opinion, the other information published together with the audited pension fund financial statements in the Authority's Statement of Accounts is consistent with the audited pension fund financial statements. Emily Hill Emily Hill for and on behalf of Grant Thornton UK LLP, Appointed Auditor Grant Thornton House Melton Street London NW1 2EP 29 September

15 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF LONDON PENSIONS FUND AUTHORITY We have audited the financial statements of London Pensions Fund Authority (the "Authority") for the year ended 31 March 2016 under the Local Audit and Accountability Act 2014 (the "Act"). The financial statements comprise: The Operational Account Statement of Movement in Reserves, the Operational Account Comprehensive Income and Expenditure Statement, the Operational Account Balance sheet, the Operational Account cash flow statement and the related notes; and The Residual Liabilities Statement of Movement in Reserves, the Residual Liabilities Comprehensive Income and Expenditure Statement, the Residual Liabilities Balance Sheet, the Residual liabilities Cash flow and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2015/16. This report is made solely to the members of the Authority, as a body, in accordance with Part 5 of the Act and as set out in paragraph 43 of the Statement of Responsibilities of Auditors and Audited Bodies published by Public Sector Audit Appointments Limited. Our audit work has been undertaken so that we might state to the members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Authority and the Authority's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Section 151 Officer and auditor As explained more fully in the Statement of the Section 151 Officer Responsibilities, the Section 151 Officer is responsible for the preparation of the Statement of Accounts, which includes the financial statements, in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2015/16, which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Authority s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Section 151 Officer and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Narrative Report, and the Annual Governance Statement to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. 15

16 Opinion on financial statements In our opinion the financial statements: present a true and fair view of the financial position of the Authority as at 31 March 2016 and of its expenditure and income for the year then ended; and have been prepared properly in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2015/16 and applicable law. Opinion on other matters In our opinion, the other information published together with the audited financial statements in the Narrative Report, and the Annual Governance Statement is consistent with the audited financial statements. Matters on which we are required to report by exception We are required to report to you if: in our opinion the Annual Governance Statement does not comply with the guidance included in Delivering Good Governance in Local Government: a Framework published by CIPFA/SOLACE in June 2007; or we issue a report in the public interest under section 24 of the Act; or we make a written recommendation to the Authority under section 24 of the Act; or we exercise any other special powers of the auditor under the Act. We have nothing to report in these respects. Conclusion on the Authority s arrangements to secure value for money through economic, efficient and effective use of its resources Respective responsibilities of the Authority and auditor The Authority is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements. We are required under Section 20(1)(c) of the Act to be satisfied that the Authority has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. We are not required to consider, nor have we considered, whether all aspects of the Authority's arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively. Scope of the review of the Authority's arrangements to secure value for money through economic, efficient and effective use of its resources We have undertaken our review in accordance with the Code of Audit Practice prepared by the Comptroller and Auditor General as required by the Act (the "Code"), having regard to the guidance on the specified criteria issued by the Comptroller and Auditor General in November 2015, as to whether the Authority had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people. The Comptroller and Auditor General determined these criteria as those necessary for us to consider under the Code 16

17 in satisfying ourselves whether the Authority put in place proper arrangements to secure value for money through the economic, efficient and effective use of its resources for the year ended 31 March We planned our work in accordance with the Code. Based on our risk assessment, we undertook such work as we considered necessary to form a view on whether in all significant respects the Authority has put in place proper arrangements to secure value for money through economic, efficient and effective use of its resources. Conclusion On the basis of our work, having regard to the guidance on the specified criteria issued by the Comptroller and Auditor General in November 2015, we are satisfied that in all significant respects the Authority has put in place proper arrangements to secure value for money through economic, efficient and effective use of its resources for the year ended 31 March Certificate We certify that we have completed the audit of the accounts of the Authority in accordance with the requirements of the Act and the Code. Emily Hill Emily Hill for and on behalf of Grant Thornton UK LLP, Appointed Auditor Grant Thornton House Melton Street London NW1 2EP 29 September

18 Pension Fund Accounts 18

19 5 Pension Fund Accounts Fund Account 2014/15 Notes 2015/ Dealings with members, employers and others directly involved in the Fund 218,938 Contributions 5 160,151 14,328 Transfers in from other pension funds 6 36, , , ,584 Benefits 7 241, ,148 Payments to and on account of leavers 8 30,716 (69) Capital funding cost 10 (170) 684, ,856 (451,397) Net (withdrawals) from dealings with members (75,440) (37,885) Management Expenses 9 (38,418) Returns on investments: 46,831 Investment income 11 48,805 (654) Taxes on income 12 (641) 197,365 Profit and losses on disposal of investments and changes in the market value of investments 13a (30,379) 243,542 Net return on investments 17,785 19

20 (245,741) Net increase/(decrease) in the net assets available for benefits during the year (96,073) Net Assets Statement for the year ended 31 March / / Note s 000 3,880,115 Investment assets 13 5,276,750 42,000 Cash held by investment managers 13 44,813 3,922,115 5,321,563 (30,691) Investment liabilities 13 (1,127,471) 779,069 Current assets ,050 (24,811) Current liabilities 20 (18,534) 4,645,681 Net assets of the of the Fund available to fund benefits at the period end 4,549,608 The fund s financial statements do not take account of liabilities to pay pensions and other benefits after the period end. Movement in Reserves Statement for the year ended 31 March / / ,891,422 Balance at 1 April 4,645,681 (245,741) Movement in net assets available for benefits during the year (96,073) 4,645,681 Balance at 31 March 4,549,608 20

21 6 Notes to the Pension Fund Accounts for the year ended 31 March 2016 General information The Fund is governed by the Superannuation Act 1972 and is administered in accordance with the Local Government Pension Scheme (LGPS) (Benefits, Membership and Contributions) Regulations 2007 (as amended), the LGPS (Administration) Regulations 2008 (as amended), the LGPS (Management and Investment of Funds) Regulations 2009, the LGPS Regulations 2013 and the LGPS (Transitional Provisions, Savings and Amendments) Regulations Pensions administration (administration expenses in the revenue account) is carried out in-house, while custodial arrangements and fund investment is mainly outsourced to external investment managers (investment management expenses in the pension fund account) under the guidance of LPFA s Investment Committee. An increase of 1.2 % (2.7% April 2014) was applied to pensions in April This was in accordance with The Pensions Increase (Review) Order The LPFA is registered with the Register of Occupational and Personal Pension Schemes - Reference The LPFA makes payments of annual statutory compensation following the abolition of the former Greater London Council ( GLC ) and Inner London Education Authority ( ILEA ). These payments are financed by way of a levy on all London boroughs in respect of former Greater London liabilities and on Inner London boroughs in respect of Inner London liabilities. These transactions are reported in the financial statements of the Residual Liabilities Fund. The Pension Fund is subject to triennial valuations by an independent actuary. Employers contributions are determined by the actuary to ensure that in the long term the Pension Fund s assets match its liabilities. The LPFA s Actuary is Barnett Waddingham, who have supplied an actuarial statement. This is shown on page 50 and should be read in conjunction with these accounts. Summary of Significant Accounting Policies General Principles The Statement of Accounts summarises LPFA s transactions for the 2015/16 financial year and its position as at 31 March It has been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom based on International Financial Reporting Standards (IFRS). 21

22 The accounts summarise the transactions of the Fund and report on the net assets at the disposal of LPFA. They do not take account of obligations to pay pensions and benefits which fall due after the end of the fund year. The actuarial position of the Fund, which does take account of such obligations is dealt with in note 26 and actuarial statement. The actuarial present value of promised retirement benefits, valued on a basis consistent with IAS19, is disclosed in note 26 of these accounts. The financial statements and accounts have been prepared on a going concern basis. LPFA is not required to be compliant with SERCOP (Service Reporting Code of Practice) under the Local Government Act LPFA is not governed by the Act. Contributions Normal contributions, both from the members and from the employers, are accounted for on an accruals basis at the percentage rate recommended by the Actuary in the payroll period to which they relate. Employers augmentation contributions and capital cost contributions from the employer are accounted for in accordance with the regulations under which they are paid, or in the absence of such an agreement, when received. Employers deficit funding contributions are accounted for in accordance with the agreement under which they are being paid, or in the absence of an agreement on a receipt basis. The LPFA has had discussions with the Department for Communities and Local Government (DCLG) on the long-term funding of the deficit of the Pension Fund. The LPFA continues to collect deficit pension contributions from appropriate London boroughs supported by statements from the fund actuary. Transfers to and from Other Schemes Individual transfers in/out are accounted for when the receiving scheme agrees to accept the liability. The liability normally transfers when a payment is made, unless the receiving scheme has agreed to accept liability in advance of the receipt of funds. Transfers in from members wishing to use the proceeds of their additional voluntary contributions to purchase scheme benefits are accounted for on a receipts basis and included in Transfers in. Bulk transfers in/out, where the receiving scheme has agreed to accept the liability prior to receipt and the necessary employee consents have been obtained, are accounted for in accordance with the bulk transfer terms signed by qualified actuaries appointed by the two pension schemes involved in the bulk transfer. Investment Income All investment income receipts and payments are accounted for on an accruals basis. Income from pooled investment vehicles accumulation units is not paid but is reinvested automatically. Investment market value changes comprise all realised and unrealised profits/losses during the year. 22

23 Dividends and interest on quoted investments are accounted for when received or quoted ex dividend. Taxation The Pension Fund is a registered public service scheme under Chapter 2 of Part 4 of the Finance Act 2004 and as such 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. Tax deducted in some European countries is recovered. Traditionally, LPFA have used a partial VAT recovery method with regard to investment management charges. During 2015/16 financial year, HRMC agreed to permit full recovery of VAT on these charges. Benefits Where members can choose whether to take their benefits as a full pension or as a lump sum with reduced pension, retirement benefits are accounted for on an accruals basis on the later of the date of retirement and the date the option is exercised. Other benefits are accounted for on an accruals basis on the date of retirement, death or leaving the Fund as appropriate. Investment Management Expenses Investment management expenses are accounted for on an accruals basis. Fees of the external investment managers and custodian are agreed in the respective mandates governing their appointments. Broadly these are based on the market value of the investments under management and there is also a fee payable based on a percentage of out-performance against an agreed benchmark, for most managers. Fees are either explicit, being expensed separately to the LPFA, or implicit, being expensed within the fund under management. Where they are implicit an adjustment has been made to the change in market value in order to separately identify the fees charged. The costs of LPFA s in-house investment team are re-charged as investment expenses to the Fund. Investment Transaction Costs Investment transaction costs are included in the cost of investments purchased or deducted from the proceeds of investments sold. Investment Assets Investment assets are included in the net asset statement on a fair value basis as at the reporting date. The asset is recognised in the net assets statement on the date the fund becomes party to the contractual acquisition of the asset. From this date any gains or losses arising from changes in the fair value are recognised by the Fund. Market-quoted investments are valued on the basis of the bid price (or, if unavailable, most recent transaction) on the relevant stock market. Fixed interest securities are recorded at net market value based on their current yields. 23

24 Unquoted securities are valued by the fund managers at the yearend in accordance with generally accepted guidelines. Unquoted private equities are valued by the investment managers using guidelines of the British Venture Capital Association. This includes the use of discounted cash flow models which are independently audited. Pooled investment vehicles are valued at the closing price under single pricing system, or bid price under dual pricing system, as advised by the respective fund manager. Foreign Currencies Assets and liabilities in foreign currencies are expressed in sterling at the rates of exchange ruling at the year end. Foreign currency transactions are translated to sterling at the spot exchange rate at the date of the transaction. Gains and losses arising on conversion or translation are dealt with as part of the change in market value. Derivatives Derivative contract assets are fair valued at bid prices and liabilities are fair valued at offer prices. Derivative contracts changes in fair value are included in change in market value. Futures contracts value is determined using exchange prices at the reporting date. Exchange traded options value is determined using the exchange price for closing out the option at the reporting date. Over the counter (OTC) contract options value is determined by the investment manager using generally accepted pricing models. The future value of forward currency contracts is based on market forward exchange rates at the year-end date and determined as the gain or loss that would arise if the outstanding contract were matched at the year end with an equal and opposite contract. Fund managers invest on behalf of the LPFA in accordance with the Investment Management Agreement and the Statement of Investment Principles, subject to the Local Government Pension Scheme ( LGPS ) guidelines (England and Wales). Additional Voluntary Contributions (AVCs) AVCs are not included in the accounts in accordance with 4(2)(b) of The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 (SI 2009/3093) but are disclosed as a note only (Note 18). Contributions to AVCs are paid to the AVC providers by employers or contributors and are specifically for the provision of additional benefits for individual contributors. Critical Accounting Estimates and Judgment Unquoted Private Equity, Hedge Funds, Property Funds and Infrastructure Investments It is important to recognise the highly subjective nature of determining the fair value of private equity and infrastructure investments. They are inherently based on forwardlooking estimates and judgements involving factors which include the valuations of companies deemed comparable to the asset being valued, the future cash flow expectations and discount factors used. Unquoted private equities and infrastructure investments are valued by the investment managers using guidelines set out by the 24

25 British Venture Capital Association or Institutional Limited Partners Association. The value of unquoted private equities and infrastructure at 31 March 2016 was 819m ( 639m at 31 March 2015). There is a risk that these investments may be under or overstated in the accounts, although it is considered unlikely to have a material impact on the value of the Fund. Pension Fund Liability The pension fund liability is calculated every three years by the appointed Actuary, with annual updates in the intervening years. The methodology used is in line with accepted guidelines and in accordance with IAS19 and IAS26. Assumptions underpinning the valuations are agreed with the Actuary and are summarised in the Actuarial Statement on page 50 of this report. This estimate is subject to significant variances based on changes to the underlying assumptions. Pension Fund Information The last full triennial valuation of the LPFA Fund was carried as at 31 March 2013 in accordance with the Funding Strategy Statement of the fund. The funding level was 91%. New contribution rates for employers using a risk based approach came into effect from 1 April Details of the participating employer bodies and their individual contribution rates for the year ended 31 March 2016 are set out on pages Employees pay contributions determined by their full time equivalent pay at the rates set out below: Year to 31 March 2015 Year to 31 March 2016 Pay Range Pay Range Contribution Rate 0-13, , % 13,501-21,000 13,601-21, % 21,001-34,000 21,201-34, % 34,001-43,000 34,401-43, % 43,001-60,000 43,501-60, % 60,001-85,000 60,701-86, % 85, ,000 86, , % 100, , , , % 150,001 and above 151,801 and above 12.50% The fund membership was as follows: 2014/15 Fund Membership 2015/16 17,308 Active members 17,264 26,748 Deferred beneficiaries 27,874 33,579 Pensioner / Dependents 33,838 77,635 78,976 25

26 5. Contributions By Category: 2014/ / ,531 Employers - normal 74,290 52,573 Employers - additional 48,112 48,000 Employers one off deficit payment 1,870 37,834 Members normal 35, , ,151 A one off deficit payment of 48m was received in March 2015 in relation to a pension deficit for the Valuation Office Agency. By Authority: 2014/ / ,121 Administering authority 1, ,330 Scheduled bodies 65,736 93,333 Admitted bodies 91, Community Admission Body 369 2,479 Transferee Admission Body 1, , ,151 Additional Deficit Contributions Employers in the fund continue to approach LPFA regarding additional one off contributions to the fund in order to assist in clearing their respective deficit positions LPFA enters into these discussions supported by statements from the fund actuary. 6. Transfers In From Other Pension Funds 2014/ / ,747 Group transfers 27,653 12,581 Individual transfers 8,612 14,328 36,265 26

27 7. Benefits By Category: 2014/ / ,264 Pensions 209,375 30,607 Commutation and lump sum retirement benefits 29,522 3,713 Lump sum death benefits 2, , ,310 By Authority 2014/ / Administering authority 1, ,841 Scheduled bodies 159,121 75,465 Admitted bodies 79, Community Admission Body 247 1,284 Transferee Admission Body 1, Resolution Body , , Payments To and On Account of Leavers 2014/ / Refunds to members leaving service Payments for members joining state scheme ,743 Group transfers 17,265 10,971 Individual transfers 12, ,148 30,716 The group transfers figure is significantly higher in 2014/15 due to the transfer of the Ministry of Justice employers out of the fund during the year ( 425.1m). 9. Management Expenses 2014/ / ,110 Investment Management 30,651 4,898 Administration 4,685 1,877 Oversight & Governance 3,082 37,885 Total Management expenses 38,418 27

28 10. Capital Funding 2014/ / (69) Capital Funding Cost (170) The LPFA maintains a separate bank account for the pension fund. As part of managing this requirement the funding for capital expenditure from 2011/12 onwards is transferred to the operational account in the year assets are purchased (and held in a reserve). As the assets are used the depreciation charge is credited back to the pension fund. 11. Investment income 2014/ / ,958 Fixed interest securities 2,844 21,633 Equity dividends 32,382 4 Pooled property investments ,974 Pooled Investments Unit trusts and other managed funds 1,416 3,212 Cash deposits 5,241 2,576 Private equity income 4, Other 1,896 46,831 48, Taxes on income 2014/ / Withholding Tax - Fixed Interest securities (6) (658) Withholding Tax - Equities (465) 0 Withholding Tax Private Equity (150) 0 Withholding Tax - Pooled Investments (20) (654) (641) 28

29 13. Investments Market Value 31 March 2015 Market Value 31 March Investment assets 126,623 Fixed interest securities 122,855 1,409,379 Equities 1,804,946 1,486,500 Pooled investments 1,235, ,891 Pooled property investments 147, ,528 Private equity/infrastructure 819,493 41,299 Commodity funds 23,449 9,692 Liquidity fund (Time deposit) 3, Futures 356 8,704 Forward currency contracts 1,109,168 5,021 Purchased/written options 2,385 42,000 Cash held by investment managers 44,813 4,854 Investment income due 6,142 1,459 Amounts receivable for sales 1,571 3,922,115 Total investment assets 5,321,563 Investment liabilities (11) Futures (694) (25,825) Forward currency contracts (1,123,610) (2,618) Purchased/written options (2,792) (2,237) Amounts payable for purchases (375) (30,691) Total investment liabilities (1,127,471) 3,891,424 Net investment assets 4,194,092 29

30 13a. Investments (continued) Net Investment Assets Market value 1 April 2015 Purchases during the year and derivative payments Sales during the year and derivative receipts Change in market value during in the year Market value 31 March Fixed securities interest 126,623 2,353,552 (2,371,283) 13, ,855 Equities 1,409, ,904 (218,592) 47,255 1,804,946 Pooled investments 1,486, ,899 (944,450) (77,341) 1,235,608 Pooled property investments Private equity/infrastructure Liquidity fund (Time Deposits) 147, (151) (580) 147, , ,730 (128,540) (23,225) 819,493 9,692 1,510,902 (1,517,240) 0 3,354 Commodity funds 41,299 0 (20,565) 2,715 23,449 Futures (491) (337) Purchased/Written Options Forward currency contracts 2,403 11,125 (15,769) 1,833 (408) (17,121) 8,098,340 (8,098,340) 2,679 (14,442) 3,845,348 13,644,715 (13,314,930) (33,192) 4,141,941 Other Investment Balances: Cash held by investment managers Amount receivable for sales of investments Investment income due Amounts payable for purchases of investments 42,000 2,813 44,813 1,459 1,571 4,854 6,142 (2,237) (375) Net investment assets 3,891,424 (30,379) 4,194,092 30

31 Net Investment Assets (Prior year comparative) Market value 1 April 2014 Purchases during the year and derivative payments Sales during the year and derivative receipts Change in market value during the year Market value 31 March Fixed interest securities 98,269 2,536,671 (2,515,627) 7, ,623 Equities 1,322, ,207 (721,506) 171,105 1,409,379 Pooled investments 2,580, ,798 (1,426,502) (8,548) 1,486,500 Pooled property investments 133, , ,891 Private Equity/infrastructure 519, ,159 (138,916) 62, ,528 Liquidity fund (Time Deposits) 17,190 3,833,170 (3,840,668) 0 9,692 Commodity funds 52,599 1,367 0 (12,667) 41,299 Futures (99) Purchased/Written Options 353 4,347 (2,486) 189 2,403 Forward currency contracts 8,406 84,784 (84,784) (25,527) (17,121) Investors In the Community - Guernsey - 7,633,503 (8,730,489) 208,995 3,845,347 unit trust 4,733,339 7,633,503 (8,730,489) 208,995 3,845,348 Other Balances: Investment Cash held by investment 46,996 (11,630) 42,000 managers Amount receivable for sales of investment 3,596 1,459 Investment income due 7,481 4,854 Amounts payable for purchases of investments (3,490) (2,237) 197,365 3,891,423 Net investment assets 4,787, ,365 3,891,424 Transaction costs are included in the cost of purchases and sale proceeds. Transaction costs include costs charged directly to the fund such as fees, commissions, stamp duty and other fees. Transaction costs incurred during the year total 516k ( 1,294k in 2015). In addition to the transaction costs disclosed above, indirect costs are incurred through the bid-offer spread on investments within pooled investments. 31

32 13b. Analysis of Investments 31 March March Fixed Interest Securities UK 1,759 Public sector quoted 8,622 10,394 Corporate quoted 3,147 Overseas 39,271 Public sector quoted 0 2,838 Municipal bonds quoted 30,332 72,361 Corporate quoted 80, , ,855 Equities UK 229,413 Quoted 339,605 Overseas 1,179,966 Quoted 1,465,341 1,409,379 1,804,946 Pooled Funds - Additional Analysis UK 9,632 Unit trusts 275,060 47,682 Managed Funds 916,167 Overseas 207,965 Unit trusts 12,552 1,212,215 Managed Funds 22,037 9,006 Hedge Funds 9,792 1,486,500 1,235, ,891 Pooled property investments 147, ,528 Private Equity / Infrastructure 819,493 41,299 Commodity funds 23,449 9,692 Liquidity fund (Time deposit) 3, Futures* (337) (17,121) Forward currency contracts* (14,442) 2,403 Options* (408) 3,845,348 4,141,941 *Further analysis of futures, forward currency contracts and options is given in note 13c. 32

33 13c. Investments (continued) Analysis of Derivatives Derivatives are used to hedge liabilities or hedge exposures to reduce risk to the fund. They are also used to gain exposure to an asset more efficiently than holding the underlying asset. The use of derivatives is managed in line with the Investment Management Agreement between the LPFA and the various Investment Managers. Futures Outstanding exchange traded futures contracts are as follows: Type Assets Expires Nominal value Market value 31 March 2015 Nominal value Market value 31 March UK equity Less than one year 3, ,000 1 UK equity One to five years Overseas equity Less than one year 14, , Overseas equity One to five years Overseas fixed interest Less than one year 16, Total assets Liabilities UK equity Less than one year (1,328) (22) 0 (1) Overseas equity Less than one year (6,724) 122 (5,763) (692) UK fixed interest Less than one year (2,472) (2) 0 0 Overseas fixed interest Less than one year (21,430) (109) 0 0 Total liabilities (11) (693) Net futures 154 (337) The Fund had derivative contracts outstanding as at the year-end that are traded over the Counter. The collateral held against all open positions was valued at 567 million. 33

34 Open Forward currency contracts Settlement Currency bought Local value 000 Currency sold Local value 000 Asset value 000 Liability value 000 Up to one month AUD 21,237 GBP 11,199 0 (154) Up to one month CAD 32,967 GBP 17,468 0 (265) Up to one month CHF 29,641 GBP 20,509 0 (1,047) Up to one month CHF 6,359 USD 6,300 0 (238) Up to one month CHF 6,539 EUR 5,920 0 (57) Up to one month DKK 32,722 GBP 3,444 0 (40) Up to one month EUR 101,961 GBP 77,792 0 (3,060) Up to one month EUR 4,150 USD 4,557 0 (120) Up to one month GBP 122 AUD Up to one month GBP 2,504 CAD 4, Up to one month GBP 1,716 CHF 2, Up to one month GBP 363 DKK 3, Up to one month GBP 26,742 EUR 34, Up to one month GBP 22 HKD Up to one month GBP 2,583 JPY 426, Up to one month GBP 54,364 USD 78, Up to one month GBP 4,155 ZAR 96, Up to one month HKD 50,661 GBP 4, Up to one month JPY 24,988 USD (1) Up to one month JPY 2,581,857 GBP 15,308 0 (684) Up to one month JPY 2,075,525 USD 18,400 0 (47) Up to one month NOK 11,056 GBP (15) Up to one month SEK 230,686 GBP 19,529 0 (286) Up to one month SGD 3,758 GBP 1,926 0 (16) Up to one month USD 269,167 GBP 183,965 0 (3,301) Up to one month USD 20,560 EUR 18, Up to one month USD 9,300 JPY 1,102, Up to one month ZAR 98,032 GBP 4,145 0 (490) One to six months AUD 229 GBP (1) One to six months CAD 3,271 GBP 1,743 0 (16) 34

35 One to six months CHF 54,823 GBP 39,744 0 (209) One to six months DKK 3,448 GBP (3) One to six months EUR 103,334 GBP 78,978 0 (3,160) One to six months GBP 7,020 EUR 9, One to six months GBP 1,185 JPY 189,510 0 (10) One to six months GBP 15,631 USD 22, One to six months JPY 3,896,357 GBP 24, One to six months RUB 23,200 USD (14) One to six months USD 634,968 GBP 437,651 0 (3,909) One to six months ZAR 7,639 GBP (6) 2,705 (17,147) Net forward currency contracts at 31 March 2016 (14,442) Prior year comparative Open forward currency contracts at 31 March ,704 (25,825) Net forward currency contracts at 31 March 2015 (17,121) 35

36 Purchased/Written Options Investment underlying option contract Expires Put/ call Notional holding Market value 31 March 2015 Notional holding Market value 31 March 2016 Assets Index linked purchased One to three months Call ,399 Index linked purchased three to nine months Call Index linked purchased Over twelve months Call 1,005 1, Index linked purchased Less than one month Put Index linked purchased One to three months Put 1,083 1,348 5, Index linked purchased Over twelve months Put 1,271 1, Liabilities 5,021 2,384 Index linked written One to three months Call (168) (91) (459) (1,938) Index linked written Three to nine months Call Index linked written Over twelve months Call (397) (392) 0 0 Index linked written Less than one month Put 0 0 (13) (569) Index linked written One to three months Put (931) (1,077) 0 0 Index linked written Three to nine months Put (1,159) (1,058) (3) (284) Net Purchased/Written Options (2,618) (2,971) 2,403 (407) 36

37 13d. Investments (continued) Investments Analysed by Fund Manager Market value 31 March 2015 Market value 31 March (13,043) Record Currency Management (14,195) 417,366 Buy & Hold - LPFA In-house 823,790 54,984 European Credit Management Ltd 0 970,095 Insight Investment Management (Global) Ltd 803, ,811 MFS International (UK) Ltd 925, ,877 BlackRock Management 499,362 16,020 3i Infrastructure 15,525 19,608 BNP Paribas Clean Energy Partners 20,431 14,882 Brookfield Howard Asset Management 16,594 6,994 Foresight Group 6,831 93,232 HarbourVest Partners LCC 79,389 13,857 Henderson Equity Partners 0 13,083 Impax Asset Management 10,978 6,400 Infrared Capital Partners 4, ,891 CBRE Global Investors 143,537 9,692 JP Morgan 3,354 66,775 LGT Capital Partners Ltd 55,699 91,674 M&G Investment Management Ltd 98,117 40,845 Meridiam Infrastructure 45,751 6,186 New Energy Solutions II K/S 5, Pensions Infrastructure Platform 0 110,299 Pantheon Ventures (UK) LLP 86,987 6,636 Phaunos Timber Fund Limited 6,854 11,802 Robeco Alternative Investments 10,340 64,174 Sarasin & Partners LLP 0 19,781 Schroders Investment Management 0 96,030 Semperian PPP Investment Partners 97,356 9,403 Standard Chartered 3,979 1,489 YFM Equity Partners 642 2,074 Zouk Capital LLP 1,033 34,028 Adveq Management AG 75,824 2,389 Bridges Ventures 5,768 7,597 Cleantech Europe 12,034 3,011 Montana Capital Partners LP 9,992 26,252 The Energy & Minerals Group Fund III, LP 26,504 13,208 Permira Europe V, LP 35,702 9,878 Blackrock Co-Investment IV, LP 14,864 27,968 Hermes Private Equity Co-Investment Fund II, LP 50,885 0 Apollo Union Street Partners 60,433 0 Red Kite Mine Finance 9,288 0 Pontoon Dock GMPF & LPFA Infrastructure LLP 84,901 0 Coller Capital 3,802 3,845,348 4,141,941 42,000 Cash held by investment managers 44,813 1,459 Amounts receivable for sales 1,571 4,854 Investment income due 6,142 (2,237) Amounts payable for purchases (375) 3,891,424 4,194,092 37

38 The following investments represent more than 5% of the net assets of the scheme: Security Market value 31 March 2015 % of Total Fund Market value 31 March 2016 % of Total Fund Insight Liability Driven Investment (LDI) solutions plus LDI active 1 FD Insight LDI solutions plus bonds plus FD CLS S SHS 337, , , , Securities Lending Securities lending is governed by an agreement between the LPFA and the custodian. All loans are collateralised and subject to daily valuation and calling of collateral. Cash is not accepted as collateral and a maximum of 35% of securities in the fund can be lent. The Fund held collateral of 124.8m (2015: 104.5m) in equities and government issued debt. Securities in the UK amounting to 19.5m (2015: 15.6m) were loaned as at 31 March 2016 against collateral of 21.1m (2015: 17.2m). International securities amounting to 92.7m (2015: 80.1m) were loaned against collateral of 103.7m (2015: 87.3m) as at 31 March

39 15. Financial Instruments Financial instruments held by the Fund at the year-end are categorised as follows: Market Value 31 March 2015 Category Market value 31 March Financial assets - Fair value through profit and loss ,623 Fixed interest securities 122,855 1,409,379 Equities 1,804,946 1,486,500 Pooled investments 1,235, ,891 Pooled property investments 147, ,528 Private equity/infrastructure 819,493 41,299 Commodity funds 23,449 9,692 Liquidity fund (Time deposit) 3, Futures 357 8,704 Forward currency contracts 1,109,168 5,021 Purchased/written options 2,385 3,873,802 5,269,038 Financial liabilities - fair value through profit and loss (11) Futures (694) (25,825) Forward currency contracts (1,123,610) (2,618) Purchased/written options (2,792) (28,454) (1,127,095) 3,845,347 Total - Fair value through profit and loss 4,141,941 Finance assets - loans and Receivables 42,000 Cash held by investment managers 44,813 4,854 Investment income due 6,142 1,459 Amounts receivable for sales 1, ,069 Current Assets Note , ,382 Total - Loans and Receivables 426,576 Finance liabilities - At amortised cost (2,237) Amounts payable for purchase (375) (24,811) Current liabilities Note 20 (18,534) (27,048) Total - Loans and Receivables (18,909) 4,645,681 Grand Total 4,549,608 39

40 The LPFA has financial liabilities carried at amortised cost and the carrying amount for instruments that will mature within the next twelve months from the net asset statement date is assumed to equate to the fair value. The fair values of loans and receivables at 31 March 2016 have been reviewed and were assessed as being the same as the carrying amounts in the net asset statement. Assets are carried at fair value. When an asset or liability is translated at balance sheet date the gain / loss is taken as unrealised but when the asset or liability is settled (i.e. received / paid) the gain / loss becomes realised. LPFA has not entered into any financial guarantees that are required to be accounted for as financial instruments. Valuation of financial instruments carried at fair value The valuation of financial instruments has been classified into three levels, according to the quality and reliability of information used to determine fair values. Level 1 Financial instruments at level 1 are those where the fair values are derived from unadjusted quoted prices in active markets for identical assets or liabilities. Products classified as level 1 comprise quoted equities, quoted fixed securities, quoted index linked securities, futures and options. Level 2 Financial instruments at level 2 are those where quoted market prices are not available; for example where an instrument is traded in a market that is not considered to be active, or where valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable data. Level 3 Financial instruments at level 3 are those where at least one input that could have a significant effect on the instrument s valuation is not based on observable market data. Such instruments would include unquoted equity investments which are valued using various valuation techniques that require significant judgement in determining appropriate assumptions. The values of the investment in private equity and infrastructure are based on valuations provided by the general partners of the funds in which the LPFA has invested. The valuations are determined using the guidelines set out by the British Venture Capital Association or International Limited Partners Association. 40

41 Value at 31 March 2016 Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss Financial liabilities at fair value through profit or loss ,088,707 2,360, ,493 5,269,037 (3,486) (1,123,610) (1,127,096) Net financial assets 2,085,221 1,237, ,493 4,141,941 Value at 31 March 2015 Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss 1,593,417 1,551, ,964 3,873,801 (2,629) (25,825) (28,454) Net financial assets 1,590,788 1,525, ,964 3,845,347 Reconciliation of level 3 assets Market value 1 April 2015 Purchases during the year Sales during year the Change market during year in value the Market value 31 March Level 3 728, , ,138 90, ,493 Nature and Extent of Risks Arising from Financial Instruments The Fund s primary long-term risk is that the Fund s assets will fall short of its liabilities (i.e. promised benefits payable to members). The principal aim of investment risk management is to maximise the returns of investments within reasonable risk parameters. The LPFA s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the resources available to fund its services. Overall responsibility rests with the Board, although a separate investment committee has been established along with a risk committee. Investment risk management is included within the investment strategy. The in-house investment team reports to the Investment Committee on a quarterly basis. The procedures for risk management in relation to key financial instruments is set out through the legal framework detailed within the Local Government Act 2003 and associated regulations. These require LPFA to comply with the CIPFA Prudential Code, the CIPFA Treasury Management in the Public Services of Practice and Investment Guidance. Overall, LPFA manages risk in the following ways:- by formally adopting the requirements of the Code of Practice; by approving annually in advance prudential indicators which limit the LPFA s overall borrowing; by following treasury management guidelines; and 41

42 by approving an investment strategy. In order to comply with the requirement that the LPFA set a balanced budget (Local Government Finance Act 1992) a draft budget is approved by the Corporate Management Team for submission to the Board. The draft budget once approved by Board is submitted to the Mayor of London for comment. The final budget is set by the Board bearing in mind any comments made by the Mayor. The LPFA has significant pension fund assets and these are managed in line with LPFA s investment strategy and set out in the Statement of Investment Principles. This includes the use of derivatives, further details of which are in note 13. Further information on the management and performance of these assets is included in the Pension Fund Annual Report, which is available on the LPFA s website. The LPFA also holds some pension fund assets in cash which are held in accordance with a Treasury Management Strategy Statement and underlying Treasury Management Practices, agreed by the Board and scrutinised by the Investment Committee, Audit and Risk Committee. Further details on this are provided under Credit Risk. For the year ending 31st March 2016, LPFA has undertaken no repurchase or early settlement of borrowing, incurred no premiums and discounts, entered into no financial guarantees, not defaulted on any loans and not held or pledged any collateral (apart from collateral held as part of the securities lending programme) in respect of the repayment of any loans. The LPFA s activities expose it to a variety of financial risks in respect of financial instruments: Market Risk Market risk is the risk of loss from fluctuations in asset prices, interest and foreign exchange rates and credit spreads. The fund is exposed to market risk from its investment activities. The level of risk exposure depends on market conditions, expectations of future price and yield movements and the asset mix. The objective of the fund s risk management strategy is to identify, manage and control market risk exposure within acceptable parameters, whilst optimising return on risk. The fund mitigates these risks by establishing a well-diversified strategic asset allocation, including assets which provide real term returns as well as cash flow generating assets that try to match the fund s liabilities. The exposure of the fund to market risk is monitored quarterly and reported to the Investment Committee and Risk Committee. Other Price Risk Other price risk represents the risk that the value of a financial instrument will fluctuate as a result of changes in market prices driven by factors other than those arising from interest rate risk or foreign exchange risk (e.g. supply, demand and investor confidence). Often these changes are caused by factors specific to the individual instrument or its issuer or factors affecting all such instruments in the market. The fund is also exposed to share and derivative price risk. This arises from investments held by the fund for which the future price is uncertain. All securities investments present a potential risk of loss of capital. Except for shares sold short, the maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. However, the potential losses from shares sold short, is unlimited. 42

43 The fund s investment managers mitigate this price risk of asset classes through diversification and the selection of securities. Other Price Risk Sensitivity Analysis Following analysis of historical data and expected investment return movement during the financial year, the LPFA has determined that the following movements in market price risk are reasonably possible for the 2015/16 reporting period: year expected volatility (%) 2015 % of fund Asset Class year expected volatility (%) 2016 % of fund Global Equities Private Equity Property Fixed Income Commodity Infrastructure Cash & LDI Total Fund volatility The potential price changes disclosed above are broadly consistent with one standard deviation movement in the returns for each of the major asset classes in which the Fund is invested. The total fund volatility takes into account the expected interactions between the different asset classes shown, based on underlying volatilities and correlations of the assets. The methodology has been revised from the previous accounting period; we use long term assumptions for the volatility of each asset class, along with a cautious set of long run correlation assumptions, which result in a higher volatility projection than estimated previously over the equivalent accounting period. The value of the Fund as at 31 March 2016 was 4,550m (2015: 4,645m) and the expected volatility was 11.3% (2015: 10.6%). Given these figures, we would expect that in roughly 2/3 rds of outcomes the value of the Fund would lie between 4,610m (2015: 5,112m) and 3,674m (2015: 4,140m) in 12 months time, expressed in today s equivalent present value. Interest Rate Risk The fund invests in financial assets for the primary purpose of obtaining a return on investments. These investments are subject to interest rate risks, which represent the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest Rate Sensitivity Analysis The table below shows the sensitivity in the values of the main bond mandates held by the Insight and BlackRock pooled investment vehicles. The analysis assumes a +/- 100bps parallel shift across all relevant yield curves, based on the assumption of fixed duration with underlying sensitivities provided by the two investment managers. 43

44 Asset Market Value ( m) Interest Rate Sensitivity PV01 ( m) Impact of yield shift ( m) bps bps Insight as at 31 st March Insight as at 31 st March Blackrock as at 31 st March Blackrock as at 31 st March , Currency Risk Currency risk represents the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. A global asset allocation with sterling liabilities exposes the Fund to fluctuations in exchange rates that may affect the value of its investments. The Board has established a currency hedge covering 50% of the global equity portfolio to dampen the effect of foreign currency fluctuations against sterling. This position is reviewed regularly as part of the investment strategy review. Currency Risk Sensitivity Analysis The projected standard deviation of the Fund s currency exposure is based on 12m market implied volatilities and correlations, as of the relevant accounting date. While the largest foreign currency exposure is USD, with an implied volatility of 12.6%, the higher volatilities of other currencies offset by the expected correlation mean that the overall currency exposure, after any currency hedging, is expected to contribute 1.19% (2015: 1.13%) of volatility to the overall assets ( 4.55bn) of the portfolio. This assumes no diversification with other assets. The following tables summarise the fund s currency exposure by currency as at 31 March 2016 and as at the previous period end: Value at 31 March 2015 ( m) Implied volatility % Currency Value at 31 March 2016 ( m) Implied volatility % USD JPY EUR CAD CHF AUD SEK

45 31 March March % FX Variance (% of net assets) 0.04% 1.13% Volatility (% of net assets) 2.10% 4,645m Net Assets of the fund 4,550m 4,697m Net assets plus 1 standard deviation 4,645m 4,593m Net assets less 1 standard deviation 4,454m Credit Risk Credit risk represents the risk that the counterparty to a transaction or a financial instrument will fail to discharge an obligation and cause the fund to incur a financial loss. The market values of investments generally reflect an assessment of credit in their pricing and consequently the risk of loss is implicitly provided for in the carrying value of the fund s financial assets and liabilities. In essence the fund s entire investment portfolio is exposed to some form of credit risk, with the exception of the derivatives positions, where the risk equates to the net market value of a positive derivative position. However the selection of high quality counterparties, brokers and financial institutions minimizes credit risk that may occur through the failure to settle a transaction in a timely manner. Contractual credit risk is represented by the net payment or receipt that remains outstanding, and the cost of replacing the derivative position in the event of a counterparty default. The residual risk is minimal due to the various insurance policies held by the exchanges to cover defaulting counterparties. Credit risk on OTC derivative contracts is minimized as counterparties are recognized financial intermediaries with acceptable credit ratings determined by a recognised rating agency. During the 2013/14 the LPFA joined a Group Investment Syndicate (GIS), operated by the Greater London Authority (GLA), under the supervision of the participants; the GLA, the London Fire and Emergency Planning Authority (LFEPA), the London Legacy Development Corporation (LLDC) and the Mayor s office for Policing and Crime (MOPAC). The GIS has an approved counterparty list using a sophisticated creditworthiness methodology. The methodology uses an average of the ranked ratings from the ratings agencies; Fitch, Moody s and Standard & Poor. The LPFA places the majority of its short term cash deposit with the GIS, but in addition can place cash directly with any counterparty on the approved list of the GIS. The LPFA believes it has managed its exposure to credit risk, and has had no experience of default and uncollectable deposits over the past five financial years. The fund s cash holding under its treasury management arrangements at 31 March 2016 was 338m (2015: 716m). Liquidity Risk The LPFA ensures it has adequate cash resources to meet its commitments. This will particularly be the case for cash from the cash flow matching mandates from the main investment strategy to meet the pensioner payroll costs; and also cash to meet investment commitments, particular for the diversifying assets portfolio. 45

46 The LPFA defines liquid assets as assets that can be converted to cash within three months. Illiquid assets are those assets which will take longer than three months to convert in to cash. As at 31 March 2016 the value of illiquid assets was 788.9m which represented 19.1% of the total LPFA assets (31 March m which represented 15.7% of the total LPFA assets). The LPFA has immediate access to its cash holdings with the GIS and Lloyds Bank Plc. All financial liabilities at 31 March 2016 are due within one year. Refinancing Risk The key risk is that the LPFA will be bound to replenish a significant proportion of its financial instruments at a time of unfavourable interest rates. The LPFA does not have any financial instruments that have a refinancing risk, as part of its treasury management. 16. Investment Expenses 31 March March ,709 Investment fees basic 20,276 11,402 Performance fees 10,375 31,111 30,651 Included in Investment expenses is 471k in respect of the In-house investment team costs (2015: 839k). 17. Cash Balances 31 March March ,629 Short term deposits 359,530 42,000 Pooled deposits placed by investment managers 44, , , AVC Investments Market value 31 March 2015 Market value 31 March ,265 Prudential 11,525 AVC contributions of 1,929k (2015: 2,136k) were paid directly to Prudential during the year. 46

47 19. Current Assets 31 March March ,629 Cash balances 359,530 2,500 Contributions due employees 2,282 7,771 Contributions due employers 6,826 7,172 Sundry debtors 8,353 (1,018) 15 Prepayments 1 Impairment allowance for bad and doubtful debts (2,942) 779, ,050 The significant majority of debtors are with private entities. Impairment Allowance for Bad and Doubtful Debts During the year the Fund made an impairment allowance in respect of the possible nonrecovery of pensioner death overpayments and potential non-payment of cessation values where the employer is not backed up by a guarantee. These are reviewed on a case by case basis. No allowance is made in respect of other debts which relate to sums due to LPFA from employers. 20. Current Liabilities 31 March March (23,209) Sundry creditors (14,573) (30) Group transfer (1,797) (1,572) Benefits payable (2,164) (24,811) (18,534) The significant majority of creditors are with other entities and individuals, investment management and performance fees being the vast majority of this. 21. Related party Transactions This disclosure note has been produced using a specific declaration obtained in respect of related party transactions. The LPFA has prepared this note in accordance with its interpretation and understanding of IAS24 and its applicability to the public sector using current advice and guidance. Mike O Donnell (Board member) is the Executive Director of Corporate Services at London Borough of Camden. The London Borough of Camden paid employer contributions of 458k (2015: 469K) during the year. Stephen Alambritis (Board member) is the Leader of London Borough of Merton. No contributions were paid by the London Borough of Merton during the year (2015:nil). These two boroughs are Scheduled bodies in the Fund. The Mayor of London comments on the LPFA annual budget and the Greater London Authority is a participating employer of the pension scheme and paid employer contributions of 4,689k during the year (2015: 4,794k). The LPFA Operational Account and Residual Liabilities account are deemed to be related parties and transactions relating to such are reflected elsewhere in these accounts. 47

48 22. Contingent Liabilities and Contractual Commitments Outstanding capital commitments (investments) at 31 March 2016 totalled m [2015: 246.2m] based on: Currency Commitment (m) Exchange Rate m US$ CHF EUR GBP N/A Total These commitments relate to outstanding call payments due on unquoted Limited Partnership funds held in the Private Equity and Infrastructure parts of the portfolio. The amounts called by these funds are both irregular in size and timing over a period of between 4 and 6 years from the date of each original commitment. 23. Statement of Investment Principles A copy of the statement can be obtained by contacting LPFA at 169 Union Street or via the corporate website: Post Balance Sheet Events There have been two non-adjusting post balance sheet events, which are detailed below; Formation of the Local Pensions Partnership Group On 8 th April 2016 the London Pensions Fund Authority and the pension fund of Lancashire County Council went live with an asset and liability management partnership, forming the Local Pensions Partnership Group ( The Partnership ). The Partnership, which is a response to the Government's reform agenda for Local Government Pension Schemes, has the potential to fundamentally change the way in which the two funds are managed and achieve significant reductions in the cost of running the Funds. The Partnership comprises, a pool of investment assets (made up of the assets of the two funds, which are jointly managed and invested) and a pension services organisation. The Partnership carries out both investment management and pensions administration functions. Both the asset pool and the investment management activities are regulated by the Financial Conduct Authority. EU Referendum On 23rd June 2016, following the EU Referendum, the UK decided to exit the European Union. Both pre and post referendum, the directors of LPFA fully considered the implications of the outcome. In the short term, the impact has been favourable, however the directors continue to monitor the longer term effect and act accordingly. 25. Participating Employers 48

49 A list of the employer bodies of the Pension Fund is set out on pages Actuarial Present Value of Promised Retirement Benefits In addition to the triennial valuation, the fund s actuary also undertakes a valuation of the pension fund liabilities in accordance with IAS 26, every year using the results of the Triennial Actuarial Valuation as at 31 March 2013, estimated income and expenditure for the year, fund returns for the year and details of any new retirements for the year that have been paid out on an unreduced basis, which are not anticipated in the normal employer service cost. The present value of the Funded Obligation at 31 March 2016 for the Fund was 6,870m (2015: 7,154m). The net liability for the Fund at 31 March 2016 was 2,325m (2015: 2,528m). Key Assumptions Used Life expectancy from age 65 (years) 31 March March 2015 Retiring today : Males Females Retiring in 20 years: Males Females Members will exchange half of their commutable pension for cash at retirement. Members will retire at one retirement age for all tranches of benefit, which will be the pension weighted average tranche retirement age No members will take up the option under the new LGPS to pay 50% of contributions for 50% of benefits. The financial assumptions used for the purposes of the calculations are as follows. 31 March 2016 %p.a. 31 March 2015 %p.a. RPI increases CPI increases Salary increases Pension increases Discount rate

50 These assumptions are set with reference to market conditions at 31 March ACTUARIAL STATEMENT Introduction The last full triennial valuation of the London Pensions Fund Authority Pension Fund was carried out as at 31 March 2013 in accordance with the Funding Strategy Statement of the Fund. The results were published in the triennial valuation report dated March The next formal valuation will be carried out as at 31 March 2016, with new contribution rates set from 1 April This statement gives an update on the likely progression of the funding position to 31 March 2016 and comments on the main factors that have led to a change since the full valuation as at 31 March Valuation Results The results for the Fund at 31 March 2013 were as follows The Fund as a whole had a funding level of 91% i.e. the assets were 91% of the value that they would ve needed to be to pay for the benefits accrued to that date, based on the assumptions used. This corresponded to a deficit of 483m which is lower than the deficit at the previous valuation in The contribution rate for each employer was set based on the annual cost of new benefits plus any adjustment (usually expressed as a lump sum payment) required to pay for their individual deficit. The assumptions used for each employer in setting these contributions varied based on the period that they were expected to continue in the Fund and the assessed strength of their covenant. The contributions for strong employers that were expected to stay in the Fund over the long term were set using the same assumptions as the overall Fund results with an individual deficit recovery period of up to 17 years. In contrast, weaker employers that were expected to leave the Fund shortly were set contributions which target fully funded on a minimum risk basis when they leave the Fund. Updated position Using an approach consistent with the 2013 valuation, the funding position at 31 March 2016 is projected to have slightly improved. The main reason for the improvement is the payment of deficit contributions by employers. The method and assumptions to be used for the 2016 valuation will be discussed during 2016/17 and the results shall be published by 31 March Mark Norquay FFA Associate, Barnett Waddingham LLP 50

51 8 Employers participating in the Fund Based on any employer with whom the LPFA has had an economic transfer in 2015/16. Employer body Type of body Contribution rate % Affinity Sutton Admitted body 0 Age Concern London Admitted body 0 ALL ENGLAND NETBALL ASSN Admitted body 0 All Saints Educational Trust Admitted body 0 ALLEYNS COLLEGE Admitted body 0 Alleyn's School Admitted body 18.7 AMICUS HORIZON GROUP Admitted body 0 ARCHBISHOP TENISON'S SCHOOL Scheduled body 19.2 ARTS COUNCIL OF ENGLAND Admitted body 0 ASSOC OF EDUCATION COM Scheduled body 0 ASSOCIATION OF COLLEGES Admitted body 16.7 Ave Maria School Scheduled body 0 B E C T A Admitted body 0 Babcock Critical Services Ltd. Transferee 17.5 Babcock Training Limited Transferee 17.7 BARNARDOS Admitted body 0 BETHNAL GREEN CITY CHALLENGE Admitted body 0 BISHOP THOMAS GM SCHOOL Scheduled body 14.9 BONDWAY HOUSING ASSOCIATION Admitted body 0 Bouygues E&S UK Limited Scheduled body 0 Briggs Marine Contractors Ltd Transferee 15.9 BRIT AMATEUR GYMNASTIC ASSOC Admitted body 0 BRIT INST REC SND(BRIT LIB) Admitted body 0 BRITISH ATHLETICS FEDERATIO Admitted body 0 BRITISH FILM INSTITUTE Admitted body 12.2 BRITISH MOUNTAINEERING COUN Admitted body 0 British Sports Trust Community body 0 BROADACRES HOUSING ASSN LTD Admitted body 19.7 Broxbourne District Council Scheduled body 0 BRUNEL UNIVERSITY Admitted body 17.1 BUFVC Admitted body 17.2 BURNTWOOD SCHOOL Scheduled body 0 C I L T Admitted body 0 CAPITA PLC Admitted body 28.9 CARDINAL VAUGHAN Scheduled body 0 CAREER DEVELOPMENT INSTITUTE Admitted body 0 CARIS HARINGEY Admitted body 0 51

52 CASTLE VALE COMMUNITY HOUSING ASSOC Community body 0 CFBT ADVICE & GUIDANCE Admitted body 34.5 CfBT Education Trust Admitted body 34.9 CFBT Strategies Scheduled body 0 CHARLOTTE SHARMAN G.M.PRIMA Scheduled body 15.9 CHARTERED INSTITUTE OF HOUSING Admitted body 14.7 CHILDREN SCHOOLS & FAMILIES Admitted body 0 CHURCHILL CONTRACT SERVICES LTD Transferee 19.9 CITY AND ISLINGTON COLLEGE Scheduled body 15 City of London Scheduled body 0 CITY OF WESTMINSTER Scheduled body 27.1 CITY OF WESTMINSTER COLLEGE Scheduled body 16.4 CITY UNIVERSITY Admitted body 12 CNTR FOR ENVIRONMENT STUDY Admitted body 0 CNTR SCHOOL SPEECH & DRAMA (CSSD) Admitted body 14 COLFES GRAMMAR SCHOOL Admitted body 0 COMMISSION FOR LOCAL ADMIN Admitted body 14.6 Consortium of Rural Techs Admitted body 0 CON FOR AWDS IN CARE HEALTH & ED (CACHE) Admitted body 15.8 CORAM'S FIELDS Admitted body 18.7 Cordwainers Admitted body 0 CORPUS CHRISTI RC PRIMARY S Scheduled body 12.5 Council of National Academic Awards Admitted body 0 DCLG Community body 0 Dept. For Constitutional Affairs Scheduled body 0 DIGBY STUART COLLEGE Admitted body 0 Divert Trust Admitted body 0 Dulwich College Admitted body 15.8 DULWICH PICTURE GALLERY Admitted body 0 DURAND ACADEMY Scheduled body 14.2 DVLA Scheduled body 0 Ealing, Hammersmith & West London College Scheduled body 15.2 EARDLEY GRANT MAINTAINED SCHL Scheduled body 0 East London Housing Association Admitted body 0 East London Waste Authority Scheduled body 16.6 ELLIOTT GRANT MAINT. SCHOOL Scheduled body 0 EMANUEL SCHOOL Admitted body 36.4 ENGLISH INSTITUTE OF SPORT Admitted body 12 ENVIRONMENT AGENCY Scheduled body 0 EPPING FOREST D C Scheduled body 0 Family Mosaic Admitted body 0 FAMILY SERVICE UNITS Admitted body 0 FireBuy Limited Scheduled body 0 Food Standard Scotland Admitted body 16.7 FOOD STANDARDS AGENCY Admitted body 16.7 FOREST HILL VSA Admitted body

53 FRIARS SCHOOL Scheduled body 12.7 Futures Charitable Trust Admitted body 0 G.L.E.LTD Admitted body 15.4 GALLIONS HOUSING ASSOCiation Admitted body 15.6 GEFFRYE MUSEUM TRUST Admitted body 14.3 Genesis Housing Association Ltd Admitted body 19 GILBERT PLACE CENTRE Admitted body 0 GLL NEXUS Admitted body 18.2 Godolphin & Latymer School Admitted body 0 GOLDSMITHS, UNIVERSITY OF LONDON Admitted body 15.5 GORSEWAY CARE LTD Admitted body 0 GRAVENEY GRANT MAINT SCHOOL Scheduled body 0 GREATER LONDON AUTHORITY Scheduled body 12 GREATER LONDON COUNCIL Scheduled body 0 GREATER LONDON STAFF ASSOC Admitted body 0 Greenwich Community College Scheduled body 19.1 GREENWICH YOUNG PEOPLES THT Admitted body 0 GUINNESS TRUSTEES LIMITED Admitted body 0 H.E.F.C.E. Scheduled body 0 HABERDASHER ASKE'S Admitted body 0 HACKNEY DOWNS SCHOOL Scheduled body 0 HERTSMERE BOROUGH COUNCIL Scheduled body 0 HILLBROOK G M SCHOOL Scheduled body 0 Homes and Communities Agency Admitted body 0 HONEYWELL INFANTS G M SCHOOL Scheduled body 0 HONEYWELL JUNIOR G M SCHOOL Scheduled body 0 HORNIMAN MUSEUM Admitted body 14.3 HOUNSLOW WELCARE Admitted body 0 HOUSING COMP.REGS. (CROMBIE) Scheduled body 0 ILEA Scheduled body 0 IMMANUEL C OF E PRIMARY SCH Scheduled body 12 INNER LNDN PBN & AFTER CARE Scheduled body 0 Inner London Magistrates Court Scheduled body 0 INST ENVIRONMENT HEALTH OFF Admitted body 12.2 JEWISH FREE SCHOOL Scheduled body 0 JULIAN'S PRIMARY SCHOOL Scheduled body 19.2 Kelly House Bail Hostel Admitted body 0 KETTERING COMM. LEISURE LTD Admitted body 0 KINGS COLLEGE LONDON Admitted body 0 KINGSTON UNIV SERVICE CO LTD Admitted body 36.1 L A S E R Admitted body 0 L B HAMMERSMITH & FULHAM Scheduled body 24.1 L B RICHMOND UPON THAMES Scheduled body 0 L B WANDSWORTH Scheduled body 23.8 L.B. OF LAMBETH - DUNRAVEN SCHOOL Scheduled body 13.7 LA SAINTE UNION CONVENT SCHOOL Scheduled body

54 LAMBETH COLLEGE Scheduled body 16.5 LARETRAITE HIGH SCHOOL Scheduled body 14.6 Laser Advisory Council Ltd Admitted body 0 LB OF TOWER HAMLETS Scheduled body 23.6 LB OF WALTHAM FOREST Scheduled body 26.7 LB.OF KINGSTON ON THAMES Scheduled body 0 Lee Valley Leisure Trust Ltd Admitted body 12.7 LEE VALLEY REG PARK AUTH. Scheduled body 21.7 Lewisham Southwark College Scheduled body 12.9 LFEPA Scheduled body 14.9 Liverpool HAT Admitted body 0 LOCAL AUTH MUTUAL INVESTMENT TRUS Admitted body 0 London & East Anglia Group Admitted body 0 LONDON & EAST ANGLIAN GROUP Admitted body 0 LONDON ARTSCOM LTD. Admitted body 17.2 LONDON BOROUGH BARNET Scheduled body 0 LONDON BOROUGH BEXLEY Scheduled body 0 LONDON BOROUGH BRENT Scheduled body 0 LONDON BOROUGH BROMLEY Scheduled body 0 LONDON BOROUGH CAMDEN Scheduled body 23.8 LONDON BOROUGH EALING Scheduled body 0 LONDON BOROUGH ENFIELD Scheduled body 27.2 LONDON BOROUGH HACKNEY Scheduled body 23.9 LONDON BOROUGH HARINGEY Scheduled body 0 LONDON BOROUGH HARROW Scheduled body 0 LONDON BOROUGH HILLINGDON Scheduled body 0 LONDON BOROUGH HOUNSLOW Scheduled body 0 LONDON BOROUGH ISLINGTON Scheduled body 23.9 LONDON BOROUGH LAMBETH Scheduled body 23.7 LONDON BOROUGH LEWISHAM Scheduled body 24.1 London Borough of Barking & Dagenham Scheduled body 0 London Borough of Camden Scheduled body 0 London Borough of Havering Scheduled body 0 LONDON BOROUGH OF LAMBETH Scheduled body 19.2 LONDON BOROUGH OF MERTON Scheduled body 0 London Borough of Newham Scheduled body 0 London Borough of Redbridge Scheduled body 0 LONDON BOROUGH OF SUTTON Admitted body 0 LONDON BOROUGH SOUTHWARK Scheduled body 23.5 London Councils Admitted body 12 LONDON DIOCESAN BOARD Admitted body 0 LONDON DIOCESAN FUND Admitted body 0 London Legacy Development Corporation Scheduled body 12 LONDON METRO UNI (NTH LOND) Scheduled body 0 LONDON METRO UNIVERSITY Scheduled body 0 LONDON METROPOLITAN UNIVERSITY Admitted body 16 54

55 LONDON NAUTICAL SCHOOL Scheduled body 19.2 LONDON ORATORY R C SCHOOL Scheduled body 0 LONDON PENSIONS FUND AUTHORITY Scheduled body 12 LONDON RESIDUARY BODY Scheduled body 0 LONDON SINFONIETTA Admitted body 0 London South Bank Careers Admitted body 0 London Thames Gateway Scheduled body 0 London Transport Users Commission Resolution body 0 MARYWARD SETTLEMENT Admitted body 17 METHODIST COLLEGES,SCHOOLS Admitted body 0 Middlesex Area Magistrates Court Scheduled body 0 MIDDLESEX AREA PROBATION CT Scheduled body 0 MIDDX ASSOC FOR THE BLIND Admitted body 0 MILTON KEYNES COUNCIL Admitted body 0 MITIE MANAGED SERVICES LTD Transferee 0 MOJ SHARED SERVICES Scheduled body 0 MORLEY COLLEGE Scheduled body 17.7 MOUNTAIN TRAINING LIMITED Admitted body 21.3 MYRRH LTD Admitted body 0 NACRO Admitted body 0 NAT INST ADULT CONT EDUCAT Admitted body 16.5 NAT.ADV.BODY PUB.SEC.HIGHER ED Admitted body 0 National Council for Voluntary Youth Ser Scheduled body 0 National Crime Agency Scheduled body 0 National Crime Intelligence Service Resolution body 0 NATIONAL HEALTH SERVICE Scheduled body 0 NATIONAL OFFENDER MANAGEMENT SERVICE Scheduled body 0 National Probation Board Admitted body 0 NATIONAL RIVERS AUTHORITY Scheduled body 0 NE London Magistrates Court Scheduled body 0 NEWCASTLE COLLEGE (RATHBONE) Admitted body 35.6 Newlon Housing Trust Admitted body 0 NLWA Scheduled body 0 NORTH EAST LONDON PBN CTTEE Scheduled body 0 NORTH HULL HOUSING ACTION TR. Admitted body 0 NORTH LONDON HOSPICE GROUP Admitted body 26 NOTRE DAME SCHOOL Scheduled body 19.2 NSL Limited Transferee 21.6 Old Oak & Park Development Corporation Admitted body 12 OLD FORD HOUSING ASSOCIATION Admitted body 40.2 Open College Network London Region Admitted body 20.6 Our Lady of Victory Primary School Scheduled body 0 PEABODY TRUST Admitted body 15.6 PENROSE HSG ASS. Admitted body 0 PLACES FOR PEOPLE Admitted body 0 POPLAR HARCA Admitted body

56 PROSPECTS SERVICES Admitted body 20.4 R B KENSINGTON & CHELSEA Scheduled body 24.5 RADICLE Admitted body 0 RAINE'S FOUNDATION SCHOOL Scheduled body 17 RICS BEV FUND (LIONHEART) Admitted body 36.4 ROEHAMPTON UNIVERSITY Admitted body 15.5 Royal Borough of Greenwich Scheduled body 24.2 Royal Institute of Public Admin Admitted body 0 RPS Rainer Admitted body 0 S London Church Fund & Swk Diocesan Admitted body 0 S S A F A FORCES HELP Admitted body 25 S.K.I.L.L. Admitted body 0 SACRED HEART SCHOOL Scheduled body 12 SALESIAN G M COLLEGE Scheduled body 0 SAMUEL LEWIS HOUSING TRUST Admitted body 0 SE London Magistrates Court Scheduled body 0 SEARCH YOUR CAREERS SERVICE Admitted body 0 SENSE Admitted body 0 Serco Limited Transferee 0 SERCO LTD. MARINE SERVICES Transferee 0 SHENLEY LEISURE CTR. TRUST LTD Admitted body 31.7 SHOREDITCH COLLEGE Scheduled body 0 SITA UK Ltd Transferee 23.1 SLCF & Southwark Admitted body 0 SLOUGH BOROUGH COUNCIL Scheduled body 0 Sodexo Ltd Transferee 18.4 SOUTH BANK UNIVERSITY Admitted body 15.2 SOUTH EAST LONDON PBN CTTEE Scheduled body 0 SOUTH THAMES COLLEGE Scheduled body 18.6 SOUTH WEST LONDON COLLEGE Admitted body 0 SOUTH WEST LONDON PBN CTTEE Scheduled body 0 Southern Archaeology Admitted body 0 SOUTHFIELDS G M SCHOOL Scheduled body 0 SOUTHWARK COLLEGE Scheduled body 0 SOUTHWARK MEDIATION CENTRE Admitted body 0 SPORT AND RECREATION ALLIANCE LIMITED Admitted body 18.8 Sport England Admitted body 12 SPORTS COUNCIL Admitted body 0 ST ANDREWS R C SCHOOL Scheduled body 13.8 ST ANNES Scheduled body 19.2 ST ANTHONY'S CATHOLIC PRIMA Scheduled body 19.2 ST BERNADETTE'S SCHOOL Scheduled body 17.7 ST CHRISTOPHER'S FELLOWSHIP Admitted body 19.1 ST FRANCIS XAVIER Scheduled body 17.3 ST JOSEPH INFANTS Scheduled body 19 ST JOSEPH JUNIORS Scheduled body

57 ST MARTIN IN THE FIELD Scheduled body 17.4 ST MARYLEBONE HOUSING ASSN Admitted body 0 ST MARYS RC PRIMARY SCHOOL Scheduled body 19.2 ST MICHEALS SCHOOL Scheduled body 15.2 ST PANTILE HOUSE ASS IN CAM Admitted body 0 ST THOMAS' SCHOOL Scheduled body 0 ST THOMAS THE APOSTLE Scheduled body 14.7 ST.FRANCESCA CABRINI PRIMAR Scheduled body 19.2 STONEBRIDGE H.A.T Admitted body 0 SULGRAVE CHARITABLE TRUST Admitted body 0 SURREY SQUARE PRIMARY SCHOOL Scheduled body 19.2 SUTTON CNTRE FOR INDEP LIVIN Admitted body 0 Sutton Performing Arts Network Admitted body 0 SW London Magistrates Court Scheduled body 0 TANDRIDGE LEISURE LTD Admitted body 17.1 Teachers Scheduled body 0 TENNANT HOUSING TRUST LTD Admitted body 0 THAMES CONSERVANCY Admitted body 0 THAMES WATER UTILITIES LTD Scheduled body 0 THE CITY LITERARY INSTITUTE Admitted body 12.3 THE COMMUNITY COLLEGE HACKNEY Scheduled body 16.1 THE ENGLISH & MEDIA CENTRE Admitted body 23.5 The Froebel Trust Admitted body 23.4 The Guinness Partnership Admitted body 14.2 The Museum Association Admitted body 0 The Planning Inspectorate Community body 0 THE RADIUS TRUST Admitted body 16.6 The Pioneer Group Admitted body 12.3 Three Rivers District Council Scheduled body 0 Thurlow Park School Scheduled body 0 Thurrock Borough Council Scheduled body 0z TOWER HAMLETS COLLEGE Scheduled body 15.2 TOWER HAMLETS H A T Admitted body 0 TRANSPORT FOR LONDON Scheduled body 12 Trinity Laban Admitted body 34.2 TRUST THAMESMEAD Admitted body 15.6 TURNEY SCHOOL Scheduled body 19.2 TURNHAM SCHOOL Scheduled body 19.2 U K H T (WALES) LTD Admitted body 0 UK Anti Doping Ltd. Community body 12 UK Film Council Admitted body 0 UK SPORTS COUNCIL Admitted body 12 UNIV ASS CONTEMP EURO STUDI Admitted body 0 UNIVERSITY OF GREENWICH Admitted body 16 University of Reading Admitted body 0 UNIVERSITY OF ST MARK & ST JOHN Admitted body

58 UNIVERSITY OF SURREY Admitted body 0 University of the Arts London Scheduled body 17.2 UNIVERSITY OF WESTMINSTER Admitted body 14.3 URBAN LEARNING FOUNDATION Admitted body 0 VALUATION OFFICE AGENCY Scheduled body 18.2 VALUATION TRIBUNAL SERVICE Scheduled body 14.7 WALTHAM FOREST CBHA LTD Admitted body 15.6 WEST LONDON WASTE AUTHORITY Scheduled body 18 WEST MIDLANDS PENSION FUND Scheduled body 0 WESTERN RIVERSIDE WASTE AUTHORITY Scheduled body 12 WESTMINSTER KINGSWAY COLLEGE Scheduled body 13.8 Willowfield School Scheduled body 0 Woking Borough Council Scheduled body 0 58

59 Operational Accounts 59

60 9 Operational Accounts Operational Account Statement of Movement in Reserves Pension Reserve Compensated Absences Reserve General Reserve Business Reserve Valuation Reserve Org Devt Reserve Innovations Reserve Capital Contributions Reserve New Premises Reserve Total Reserves Balance at 31 March 2014 c/fwd (13,234) (85) (11,805) Movement in Reserves during 2014/15 Surplus or (deficit) on provision of services Other Comprehensive Income and Expenditure Total Comprehensive Income and Expenditure Net Increase/Decrease before Transfers to Earmarked Reserves (619) (619) (41) (41) (41) (41) Transfers to/from Earmarked Reserves (210) (69) 227 Remeasurements of the Net Defined Benefit Liability (5,487) (5,487) Movement in year (1,004) 1,004 Accumulated Compensating Absences provision 17 (17) Increase/Decrease in Year (6,491) (69) 227 (5,528) Balance at 31 March 2015 c/fwd (19,725) (68) 1, (17,333) 60

61 Pension Reserve Compensated Absences reserve General Reserve Business Reserve Valuation Reserve Org Devt Reserve Innovations Reserve Capital Contributions Reserve New Premises Reserve Total Reserves Balance at 1 April 2015 b/fwd (19,725) (68) 1, (17,333) Movement in Reserves during 2015/16 Surplus or (deficit) on provision of services (468) (468) Other Comprehensive Income and Expenditure Total Comprehensive Income and Expenditure (697) (697) (1,165) (1,165) Net Increase/Decrease before Transfers to Earmarked Reserves (1,165) (1,165) Transfers to/from Earmarked Reserves (10) (170) Remeasurements of the Net Defined Benefit Liability 2,556 2,556 Movement in year (1,306) 1,306 Accumulated Compensating Absences provision (42) 42 Increase/Decrease in Year 1,250 (42) (10) (170) 1,391 Balance at 31 March 2016 carried forward (18,475) (110) 1, (15,942) The LPFA is not required to comply fully with CIPFA s Capital Accounting Regulations when accounting for property, plant and equipment as it does not have a Capital Adjustment Account. All capital is funded from revenue sources. 61

62 Operational Account Comprehensive Income & Expenditure Statement for the year ended 31/3/ March 2015 Notes 31 March (8,021) Income 6 (8,603) (2,959) Other income 7 (3,277) 10,402 Expenditure 8 to 10 12,348 (578) Net Cost Of Services 468 Other Operating Expenditure 619 Financing and Investment Income and Expenditure Deficit on Provision of Services 1,165 Other Comprehensive Income and Expenditure 5,487 Remeasurements of the Net Defined Benefit Liability 12 (2,556) 5,528 Total Comprehensive Income and Expenditure (1,391) 62

63 Operational Account Balance Sheet as at 31/3/ March 2015 Notes 31 March Property, Plant & Equipment Intangible Assets Non-current assets Receivables 18 2,122 1,390 Cash and cash equivalents 21 1, Prepayments 262 2,260 Current Assets 3,414 (673) Payables 19 (1,516) (673) Current Liabilities (1,516) Non-current liabilities (19,725) Pension liability 12 (18,475) (17,333) Net liabilities (15,942) Reserves 22 1,055 General Reserve 1, Business reserve Valuation reserve Organisational development reserve New Premises Reserve Innovations Reserve Capital Contributions Reserve 635 (68) Compensated Absences (110) (19,725) Pension Reserve (18,475) (17,333) Total Reserves (15,942) 63

64 Operational Account Cashflow Statement for the year ended 31/3/ March 2015 Notes 31 March (41) Net Surplus/(deficit) on the provision of services (1,165) 1,590 Adjustments to net Surplus/(deficit) on the provision of services for non-cash movements ,549 Net cash flows from Operating Activities (261) (225) Investing Activities - acquisition on non-current assets 13 & 14 (99) 1, ,390 Net increase or (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the reporting period Cash and cash equivalents at the end of the reporting period (360) 1,390 1,030 64

65 10 Notes to the financial statements for the year ended 31 March 2016 General Information The operational costs incurred by LPFA in administering the pension fund, residual liabilities fund and agency contracts are accumulated in the operational accounts and are reimbursed from the respective source. Summary of Significant Accounting Policies General Principles The Statement of Accounts summarises LPFA s transactions for the 2015/16 financial year and its position at year-end of 31 March It has been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2015/16: based upon International Financial Reporting Standards (IFRS). The accounting convention adopted is historical cost. LPFA is not required to be compliant with Service Reporting Code of Practice (SERCOP) under the Local Government Act LPFA is not governed by the act. The financial statements and accounts have been prepared on a going concern basis. Accruals of Income and Expenditure Activity is accounted for in the year that it takes place, not simply when cash payments are made or received. In particular: Fees and charges are accounted for as income at the date LPFA provides the relevant services. Supplies are recorded as expenditure when they are consumed. Where income or expenditure has been recognised but cash has not been received or paid, a receivable or payable for the relevant amount is recorded in the balance sheet. Where it is doubtful that debts will be settled, the balance of receivables is written down and a charge is made to revenue for the income that might not be collected. Cash and Cash Equivalents Cash and cash equivalents comprise cash in hand and demand deposits, together with short term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of change in value. An investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Bank overdrafts which are repayable on 65

66 demand and which form an integral part of an entity s cash management are also included as a component of cash and cash equivalents. Cash balances not required for immediate use are invested in accordance with LPFA s Treasury Management Strategy. Interest earned on LPFA s balances is credited to the Comprehensive Income and Expenditure Statement during the year and appropriate accruals are made at year-end. Employee Benefits Benefits payable during employment Employee benefits are those due to be settled in the financial year. They include salaries, bonuses, paid annual leave and paid sick leave for employees and are recognised as an expense in the year in which the employee renders services to LPFA. An accrual is made for leave and flexi-time carry-forward at the end of the financial year. This is reversed out through the movement in reserves statement. Post employment benefits LPFA participates in the Local Government Pension Scheme (LGPS) administered by the LPFA. This is a funded, defined benefit scheme. Employees and employers contributions are paid in to the LGPS. Employers contribution rates are advised by the LPFA Fund s Actuary, Barnett Waddingham. The pension liabilities of the LPFA are included on the Balance Sheet on an actuarial basis i.e. an assessment of the future payments (retirement benefits) based on assumptions made by the Actuary about mortality rates, employee turnover rates etc and projections of earnings for current employees. The financial statements disclose the cost of providing retirement benefits and related gains, losses, assets and liabilities under IAS 19. In line with directions from Government, future pensions liabilities are now measured using the Consumer Prices Index. The Code of Practice requires the net pensions asset or liability be matched by a pensions reserve in the Balance sheet. The movement in the defined benefit obligation is analysed into the following components: Service cost: the increase in the present value of a defined benefit obligation (liabilities) resulting from employee service in the current period. Interest cost: the change during the period in the defined benefit liability that arises from the passage of time. Change in financial assumptions: changes in the present value of the defined benefit obligation resulting from a change in financial assumptions made by the actuary; Change in demographic assumptions: changes in the present value of the defined benefit obligation resulting from a change in demographic assumptions made by the Actuary; Experience loss/(gain) on defined benefit obligation: changes in the present value of the defined benefit obligation resulting from the effects of the differences between the previous actuarial assumptions and what has actually occurred; 66

67 Estimated benefits paid (net of transfers in): Payments to discharge liabilities directly to pensioners; Contributions by scheme participants: the increase in scheme liabilities and assets due to payments made into the scheme by employees (where increased contribution increases pensions due to the employee in the future). Although LPFA incorporates notional charges determined by the Actuary in to its accounts, these are then reversed out again to allow the actual amounts payable by LPFA to be charged to its Comprehensive Income and Expenditure Statement. Post Balance Sheet Events These are events that occur between the end of the reporting period and the date the Statement of Accounts are published. Events taking place after the date of publication are not reflected in the Statement of Accounts. There are two types of event possible: Adjusting - Those events that are evidence of conditions that existed at the Balance Sheet date, if these are material the statements and notes are adjusted to reflect their impact. Non-adjusting - Those events that are indicative of conditions that arose after the Balance Sheet date, the financial statements and notes are not adjusted for the impact of such events but additional explanatory notes would be provided. Provisions Provisions are made where an event has taken place that gives LPFA an obligation that probably requires settlement by transfer of economic benefits, but where the timing of the transfer is uncertain. Provisions are charged to the comprehensive income and expenditure statement in the year that LPFA becomes aware of the obligation, based on the best estimate of the likely settlement. When payments are eventually made they are charged directly to the provision set up on the balance sheet. Estimated settlements are reviewed at the end of each financial year and the provision increased or reversed back to the revenue account if it becomes more likely than not that a transfer of benefits will not be made or a lower settlement than anticipated could be made. Contingent Liabilities Contingent liabilities arise where an event has taken place that gives LPFA a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of LPFA. These are not recognised as liabilities in the accounts but disclosed in the financial statements where it is probable that an outflow of economic benefit to settle the obligation is more than remote. Leases LPFA rented office accommodation under an operating lease agreement at Dexter House 2 Royal Mint Court until December 2014 and from November 2014 has done so under a licence agreement at 169 Union Street. In both instances the costs are charged to the revenue account on a straight line basis over the term of the lease. 67

68 Property, Plant and Equipment Recognition Property, plant and equipment are assets that have physical substance and are held for use in the provision of services or for administrative purposes on a continuing basis. Expenditure is capitalised on an accruals basis, provided that it yields benefits to LPFA and its services for more than one financial year. Measurement Assets, including those under construction, are initially measured at cost, comprising all expenditure that is directly attributable to bringing the asset in to working condition for its intended use. Assets are then carried in the balance sheet at depreciated replacement cost. Impairment Asset values are reviewed at the end of each financial year for evidence of reductions in value. Depreciation Property, plant and equipment have been included in the balance sheet at their cost, net of depreciation. Depreciation is calculated using the straight-line method over the economic life of the investment to reflect the pattern of the consumption of economic benefits. All furniture, fittings and office refurbishments were depreciated fully over the lease term for Dexter House which expired on 31/12/2014. Whilst assets are under construction they are not depreciated but a valuation will be made at the time the asset is brought into use; Classification: Useful life of Property, plant and equipment Computers 3 years Servers 5 years Intangible Assets Expenditure on assets that do not have physical substance but are identifiable and controlled by LPFA (e.g. software licences) is capitalised when it will bring benefits to LPFA for more than one financial year. The balance is amortised to the Comprehensive Income and Expenditure Statement through a straight-line depreciation charge over the economic life of the investment to reflect the pattern of the consumption of economic benefits: 68

69 Classification: Software licenses Altair related (Pensions admin system) Useful life of asset: 5 years 10 years During the 2014/15 financial year LPFA purchased and developed software and licences for a significantly upgraded finance system. The system was not brought into use until May Inventory LPFA holds no major stocks or work in progress. With the exception of a few publications which are pre-printed for later distribution, the cost of all materials is charged to the Comprehensive Income and Expenditure Statement when they are purchased. Value Added Tax LPFA is VAT registered, so all income and expenditure amounts exclude VAT, with the exception of where VAT is not fully recoverable. Overheads LPFA is not required to be compliant with SERCOP (Service Reporting Code of Practice) under the Local Government Act LPFA is not governed by the act. Financial Assets / Liabilities Financial Assets/Liabilities represents transactions, with a contract, that result in a financial asset for one entity and a financial liability for another. Financial assets are recognised by LPFA on the Balance Sheet, initially at their fair value, only when goods or services have been provided or rendered to a third party. Financial liabilities are recognised, initially at their fair value, when the goods or services ordered from a third party have been received by LPFA and the third party has performed its contractual obligations. Reserves LPFA sets aside specific amounts as reserves for future policy purposes or to cover contingencies. Reserves are created by appropriating amounts in the General Fund Balance in the Movement on Reserves Statement. Where expenditure to be financed from a reserve is incurred, it is charged to the Comprehensive Income and Expenditure Statement and the reserve is then applied to offset this charge. General Reserve The General Reserve is used to fund unexpected short term costs. 69

70 Capital Contributions Reserve This is a reserve which reflects the net funding of capital spending from the Pension Fund. Premises Reserve This reserve was established by LPFA in 2014 when the lease on Dexter House expired. The reserve was used to fund work to consider the options, and to fund the costs associated with moving premises. The reserve now remains in order to fund the possibly significant costs in re-instating Dexter House to its original state should LPFA be required to do so. Valuation Reserve The carrying out of the fund triennial valuation adds about 30,000 to the LPFA s operational costs in the valuation year. From the LPFA will put resources into the reserve to fund the 2016 valuation (in ). Business Reserve A business reserve will cope with planned one off and unexpected additional costs on our commercial operations. The reserve would be used to fund investment in obtaining new contracts, any costs of the loss of a contract, and any short-term additional resources to meet any problems on an existing contract. Organisational Development Reserve The reserve supports improvements in working practices, and the development and retention of staff, this would include funding temporary staff, consultancy, departure costs and similar type expenditure. Innovations Reserve The reserve is used to fund invest to save projects. Certain reserves are kept to manage accounting processes and do not represent usable resources for LPFA. These are the Pensions Reserve and the Accumulated Leave Reserve. Pension Reserve The Pension Reserve has been set up to ring-fence the accounting for the pension costs. It merely represents the actuarially calculated deficit between the value of all pension liabilities and the assets held. Accumulated Leave Reserve The accumulated leave reserve has been set up to ring fence the accounting for the untaken leave accruals. 70

71 Financial Risk Management There is a robust budget setting process in place that includes: strategic business direction set by the Board, budget challenge by both Officers and the Audit and Risk Committee prior to the draft budget being presented to Board for its initial comment and approval prior to dispatch to the Mayor of London for formal consultation. Subsequently a revised budget paper, including comments and other changes is presented back to Board for final approval. Once approved budgets are profiled by spending officers and then monitored on a monthly basis, the outcome of such are reported through to the Corporate Management Team and regularly to Board. The budget contains income generated from commercial contracts and assumptions have been made regarding renewal of those contracts. During the course of the year, as contracts are renewed, or not, then actual events may not accurately reflect the assumptions allowed for in the budget. Events affecting commercial contracts are reviewed as they happen and on a monthly basis as part of the budget monitoring arrangements. Critical Accounting Judgements and Estimates Useful Lives of Property, Plant and Equipment LPFA estimates the useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property, plant and equipment are based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of property, plant and equipment would increase the recorded expenses and decrease the value of such within the balance sheet. Pensions Liability Estimation of the net liability to pay pensions depend on a number of complex judgements relating to the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on pension fund assets. A firm of consulting actuaries are engaged to provide LPFA with expert advice about the assumptions to be applied. However, because these judgements cannot be determined with certainty, actual results could be materially different from the assumptions and estimates. 71

72 6. Income 2014/ / (7,380) Funded by Pension Fund (7,962) (641) Funded by Residual Liability Account (641) (8,021) (8,603) 7. Other Income 2014/ / (2,309) Agency work (2,171) (14) Divorce Case Charges (14) (1) Bank Interest (1) (328) Value Added Business (316) 0 Share of strategic project costs (119) 0 Recharge of costs paid on behalf of LLP (575) (307) Other fees and charges (82) (2,959) (3,278) The LPFA run a number of agency contracts won on a commercial basis and the total income received from these in the year was 2,171k ( 2,309k for 2014/15). Additionally, LPFA is asked to provide various ad-hoc services for which it charges and this totalled 1,107k ( 650k in 2014/15). 72

73 8. Remuneration and Other Costs - Board Members Emoluments of all Board Members Consist of Allowances at a Level Determined by the Mayor of London. 2014/ / Emoluments and other costs - Board Members 187 Emoluments Employer s NI contributions Reimbursable Expenses Emoluments were paid in the following bands: 0 Up to 5, ,000 to 10, ,000 to 15, ,000 to 20, ,000 to 25, ,000 to 30, ,000 to 35, ,000 to 40, ,000 to 45, ,000 to 50, ,000 to 55, Remuneration and other costs employees 9a) Remuneration to staff during the year as follows: 2014/ / Remuneration and Other costs - employees 4,678 Salaries 5, Employer s NI contributions Employer s Pension Contributions Reimbursable Expenses Employer contributions (IAS19)* Temporary staff Training costs Recruitment costs Overtime Other employee related costs 44 (17) Accumulated compensated absences 42 6,657 8,153 *Pension contributions represent the current service costs in accordance with IAS19. 73

74 9b) Disclosure of remuneration for senior employees The following table sets out the remuneration disclosures for Senior Officers whose salary is greater than 50,000 per year. Post Holder 31 March 2016 Salary (including fees & allowances) Bonus Total remuneration excluding pension contributions Pension contributions Total remuneration including pension contributions Chief Executive (Mrs. S Martin) 165,000 49, ,500 21, ,280 Chief Finance & Risk Officer* Chief Finance & Risk Officer# (Dr. A Smith) Chief Investment Officer (Mr C. Rule) ~ 37, ,667 4,520 42, , , , , , ,750 23, ,850 Director of Pensions 107,785 32, ,100 14, ,325 Head of Governance & Strategy 85,000 25, ,500 11, ,720 Head of HR 82,763 24, ,592 10, ,517 * Left post in July 2015, FYE salary would have been 113,000. # Appointed August 2015 on an interim basis, paid via invoice. ~ Bonus includes amount earned this year but to be paid over next 3 years assuming continuing employment. 74

75 Post Holder 31 March 2015 Salary (including fees & allowances) Bonus Total remuneration excluding pension contributions Pension contributions Total remuneration including pension contributions Chief Executive (Mrs. S Martin) 155,000 15, ,500 20, ,960 Chief Finance & Risk Officer 103,000 10, ,300 13, ,896 Chief Investment Officer * 52, ,754 1,211 53,965 Chief Investment Officer (Mr C. Rule) # 75, ,000 9,000 84,000 Commercial Director ~ 85, ,346 6,554 91,900 Director of Pensions 97,850 9, ,635 12, ,551 Head of Governance & Strategy 75,000 8,500 83,500 10,200 93,520 Head of HR 72,764 7,276 80,040 9,605 89,645 *Left post in April 2014, FYE salary would have been 140,000. # Appointed October 2014, FYE salary would have been 150,000. ~ Left post in December 2014, FYE salary would have been 72,821. Salary figure quoted includes severance pay. 75

76 9c) The number of other senior employees whose remuneration, excluding employer s pension contributions, was 50,000 or more in bands of 5, /15 Remuneration band 2015/16 Number of employees Number of employees 1 50,000-54, ,000-59, ,000-64, ,000-69, ,000-74, ,000-79, ,000-84, ,000-89, ,000-94, ,000-99, , , , , , , , , , , , , , , , , , ,999 3 Please note that the above includes bonus payments. 76

77 9d) Exit packages Numbers of exit packages with total cost per band and total cost of compulsory and other redundancies (a) (b) (c) (d) (e) Exit package cost band (including special payments Number of compulsory redundancies Number of other departures agreed Total number of exit packages by cost band (b)+(c) Total cost of exit packages in each band 2014/ / / / / / / / , ,001-40, ,001-60, ,001-80, , , , , Total

78 10. Other Services 2014/ / Other Services 51 Internal Audit External Audit Professional Fees (Including consultancy) Insurances 57 7 Bank Costs 7 23 Pensioner forum and meetings Marketing expenses Other miscellaneous services 35 1,208 Operating lease, service charge, business rates Accommodation move 3 0 Costs paid on behalf of LPP Strategic project 217 Information Technology related 621 Pension system charges Equipment and external support 612 Supplies and Services 8 Business development Printing and stationary Postage Telephones Subscriptions & publications 78 5 Health and safety services 5 1 Courier Services 1 3,484 3,983 78

79 11. Disclosure of Audit Costs 2014/ / External Audit - Code of Audit Practice 20 0 External Audit - Grant certification External Audit - Fees payable in respect of other services provided by the appointed auditor External Audit - Fees payable in respect of statutory certification - VFM Audit fees were offset in 2014/15 by a 4k rebate from the Audit Commission, in 2015/16 an accrual from an historic debt was reversed reducing the total. The actual fee charged by Grant Thornton in both years is 41k. 12. Retirement Benefit Obligations Employee Benefits The LPFA had 123 out of 138 staff who are members of the Local Government Pension Scheme (LGPS). The LGPS is a tax approved, defined benefit occupational pension scheme set up under the Superannuation Act The benefits under the scheme are based on the length of membership and the average salary. Each member contributes a proportion of their salary, within a 5.5% to 12.5% range depending of their rate of pay. The LPFA, as the employing body, also contributes in to the scheme on the employee s behalf at 12.0% of the employee s salary as well as a past service cost of 205k (2014/15 196k). Benefits Payable During Employment Short-term employee benefits are those due to be settled within 12 months of the year-end. They include such benefits as wages and salaries, paid annual leave and paid sick leave, bonuses and non-monetary benefits (e.g. cars) for current employees and are recognised as an expense for services in the year in which employees render service to LPFA. An accrual is made for the cost of holiday entitlements (or any form of leave, e.g. time off in lieu) earned by employees but not taken before the year-end which employees can carry forward into the next financial year. The accrual is made at the wage and salary rates applicable in the following accounting year, being the period in which the employee takes the benefit. The accrual is charged to Surplus or Deficit on the Provision of Services, but then reversed out through the Movement in Reserves Statement so that holiday benefits are charged to revenue in the financial year in which the holiday absence occurs. Termination Benefits Termination benefits are amounts payable as a result of a decision by LPFA to terminate an officer s employment before the normal retirement date or an officer s decision to accept voluntary redundancy and are charged on an accruals basis to the Cost of Services line in the Comprehensive Income and Expenditure Statement at the earlier of 79

80 when LPFA can no longer withdraw the offer or when the authority recognises costs for a restructuring under IAS37. Where termination benefits involve the enhancement of pensions, statutory provisions require the General Fund balance to be charged with the amount payable by LPFA to the pension fund or pensioner in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, appropriations are required to and from the Pensions Reserve to remove the notional debits and credits for pension enhancement termination benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end. Post Employment Benefits Employees of LPFA are members of the LGPS, administered by the LPFA. The scheme provides defined benefits to members (retirement lump sums and pensions), earned as employees worked for LPFA. The Local Government Pension Scheme LGPS is accounted for as a defined benefits scheme: The liabilities of the LPFA pension fund attributable to LPFA are included in the balance sheet on an actuarial basis using the projected unit method i.e. an assessment of the future payments that will be made in relation to retirement benefits earned to date by employees, based on assumptions about mortality rates, employee turnover rates, etc, and projections of projected earnings for current employees. Discretionary Benefits LPFA also has restricted powers to make discretionary awards of retirement benefits in the event of early retirements. Any liabilities estimated to arise as a result of an award to any member of staff (including teachers) are accrued in the year of the decision to make the award and accounted for using the same policies as are applied to the Local Government Pension Scheme. Amounts recognized in the balance sheet are determined as follows: 2014/ / ,398 Estimated employer asset 25,870 (46,123) Present value of scheme liabilities (44,345) (46,123) Total Value of Liabilities (44,345) (19,725) Net Pension liability (18,475) 80

81 The movement in the defined benefit obligation over the year is as follows: 2014/ / ,577 At 1 April 46,123 1,045 Service cost 1,392 1,687 Interest cost 1,550 6,034 Change in financial assumptions (3,652) 0 Change in demographic assumptions 0 0 Experience loss/(gain) on defined benefit obligation 0 (655) Estimated benefits Paid (net of transfers in) (1,459) 69 Past service cost Contributions by scheme participants ,123 At 31 March 44,345 The movement in the fair value of plan assets of the year is as follows: 2014/ / ,343 At 1 April 26,398 1,105 Interest on assets Return on assets less interest (1,096) (37) Admin expenses (40) 729 Contributions by employer including unfunded Contributions by scheme participants 391 (655) Estimated benefits paid including unfunded net of transfers in (1,459) 26,398 At 31 March 25,870 81

82 Analysis of amount charged to revenue: 2014/ / ,114 Service Cost 1, Net interest on the defined liability (asset) Admin expenses 40 1,733 Total Operating Charge 2,089 Re-measurements in other comprehensive income 2014/ / Return on plan assets in excess of interest (1,096) 0 Other actuarial gains/(losses) on assets 0 (6,034) Change in financial assumptions 3,652 0 Change in demographic assumptions 0 0 Experience gain/(loss) on defined benefit obligation 0 (5,487) Re-measurements 2,556 82

83 Movement in Pension Reserve in the year: 2014/ / (13,234) At 1 April (19,725) (1,045) Current service cost (1,392) (69) Past service cost Employer contributions Contributions for unfunded benefits 0 0 Other income 0 0 Other outgoings 0 (582) Interest costs (657) 547 Return on plan assets (1,096) (37) Admin costs (40) (6,034) Actuarial gains/losses 3,652 (19,725) At 31 March (18,475) The principle actuarial assumptions were as follows: 31 March March 2016 Mortality rate for 65 year olds - retiring today Males Females Mortality rate for 65 year olds - retiring in 20 years time Males Females

84 The following assumptions were also made: Members will exchange half of their commutable pension for cash at retirement. Members will retire at one retirement age for all tranches of benefit, which will be the pension weighted average tranche retirement age; and No members will take up the option under the new LGPS to pay 50% of contributions for 50% of benefits. 31-Mar Mar Mar-14 %p.a. Real % %p.a. Real % %p.a. Real % RPI Increases CPI Increases Salary Increases Pension Increases Discount Rate Sensitivity Analysis: 31-Mar Adjustment to discount rate +0.1% 0.0% -0.1% Present Value of Total Obligation 43,459 44,345 45,249 Projected Service Cost 1,197 1,227 1,258 Adjustment to long term salary increase +0.1% 0.0% -0.1% Present Value of Total Obligation 44,431 44,345 44,260 Projected Service Cost 1,228 1,227 1,226 Adjustment to pension increases and deferred revaluation +0.1% 0.0% -0.1% Present Value of Total Obligation 45,174 44,345 43,533 Projected Service Cost 1,257 1,227 1,197 Adjustment to mortality age rating assumption +1 year None -1 year Present Value of Total Obligation 45,668 44,345 43,062 Projected Service Cost 1,258 1,227 1,196 84

85 Contributions to the Pension Fund during 2015/16 Contributions from the employer amounts to 786,000. Impact on Authority s Cash flows The next triennial valuation is due as at 31 March 16 and may have an impact on the future liability cashflows, further detail on this can be found on page 50. The authority expects to pay reduced contributions in 2016/17 due to the change in structure of the LPFA, this should amount to 148k. The weighted average duration of the defined benefit obligation for scheme members is 21 years. Pension Scheme assets comprised: Equities: Period Ended 31 March 2016 Quoted Prices Unquoted Prices Total Percentage % Segregated: Basic Materials Communications Consumer 2,167-2, Diversified Energy Financial Industrial Technology Utilities Investment funds 5,346-5, and unit trusts Private Equity - 2,262 2, LDI - 2,450 2, Target Return: Equities Corporate Bonds Government Investment Funds and Unit Trusts: Equities Bonds 1, , Cash Hedge Funds - 1,718 1, Infrastructure 88 1,740 1, Property Fund Commodity Funds Cash: Cash at bank 2,775-2, Derivatives Total 16,013 9,857 25,

86 Equities: Period Ended 31 March 2015 Quoted Prices Unquoted Prices Total Percentage % Segregated: Basic Materials Communications Consumer 2,217-2, Diversified Energy Financial Industrial Technology Utilities Investment funds 1,082 3,036 4, and unit trusts Private Equity - 2,006 2, LDI - 1,980 1, Target Return: Equities Corporate Bonds Government Investment Funds and Unit Trusts: Equities Bonds 4, , Cash Hedge Funds - 1,241 1, Infrastructure 79 1,214 1, Property Fund Commodity Funds Cash: Cash at bank 3,089-3, Derivatives Total 15,311 11,087 26,

87 13. Property, Plant and Equipment Servers Computer Equipment Furniture and Fittings Office Refurbishment Total At 31 March Additions Internal transfers Disposals (18) (2) (20) Depreciation charge (32) (37) (3) (59) (131) At 31 March Additions Internal transfers Revaluations (55) (55) Disposals (0) (0) Depreciation charge (28) (34) (62) As at 31 March Comprising: Gross carrying amounts Accumulated Depreciation (73) (119) 0 0 (192)

88 14. Intangible assets 31 March March 2016 Software and licences Assets under construction Altair Total Software licences and Assets under construction Altair Total At 1 April Gross carrying amount ,020 Accumulated amortisation (154) (96) (250) (218) (150) (368) Net carrying amount at start of year Additions: Internal development Purchases Disposal of fully amortised items (25) (25) (28) (28) Adjustment to accumulated amortisation following disposal of fully amortised items Impairment losses recognised in the Surplus/Deficit on the Provision of Services (9) (9) (2) (2) Amortisation for the period (80) (54) (134) (97) (54) (151) Internal Transfers 47 (47) At 31 March Comprising: Gross carrying amounts , ,047 Accumulated amortisation (218) (150) (368) (289) (204) (493) Please note that Altair assets have a further 6 years of useful life remaining, to the end of 2021/22. 88

89 15. Adjustment for Non-Cash Items 2014/ / Depreciation Amortisation of intangibles Revaluation of PPE Decrease/(increase) in receivables (1,363) 648 (Increase)/decrease in prepayments (150) (384) Increase/(decrease) in payables Increase/(decrease) in Provision 0 1,004 Transfer to pension reserve 1,306 1, Lease Commitment Office Accommodation 2014/ / Under One Year Between two and five years 0 1, LPFA leased its premises at Dexter House until December 2014 when it came to the end of its 25 year lease. In November 2014 LPFA began a 2 year lease at Union Street which expires in November Related Party Transactions This disclosure note has been produced using a specific declaration obtained in respect of related party transactions. Agency contracts and pension funds are related parties. LPFA Pension Fund, Residual Liabilities and the Greater London Authority are related parties and transactions relating to such are disclosed elsewhere within these accounts. The appropriate disclosures have been made in the Pension Fund accounts. 89

90 18. Receivables The LPFA does not have any transactions with NHS bodies and the significant majority of debtors are with other local authorities, the primary relationship with central government bodies is with Her Majesty s Revenues and Customs for VAT. 2014/ / Central Government Bodies Other Local Authorities Other Entities and Individuals ,122 Receivables from Central Government Bodies is comprised of a VAT rebate owed to LPFA. The total due from other entities and individuals has increased significantly due to invoicing for agency contracts taking place post 31 st March in Payables 2014/ / Central Government Bodies Other Local Authorities Other Entities and Individuals 1, ,516 Payables to Central Government Bodies are comprised of PAYE, this has increased from 2014/15 due to an inflated March 2016 payroll. Payables due to Other Local Authorities has increased due to receipt of income that had not been allocated at year end. Payables due to other entities and individuals have increased primarily due to retention and bonus payments due to staff. 20. Post Balance Sheet Events The post balance sheet detailed in the pension fund accounts has a significant effect on the operational aspect of LPFA. The majority of staff have transferred to the organisation which will provide all support services to LPFA. The effect of this will be seen in the 2016/17 accounts where LPFA now has costs limited primarily to remaining staff and service charges from Local Pensions Partnership (LPP). It is expected that during the 2016/17 remaining LPFA staff will also transfer to LPP leaving a Board, CEO and S151 officer in place. As part of the move to the partnership the LPFA transferred its IT assets to LPP at nil value and therefore incurred a write off cost in association with this. All other assets remain in place and these are used by LPP at a charge equivalent to the depreciation charge incurred by LPFA. 90

91 21. Cash and Cash Equivalents 2014/ / ,390 Cash at bank comprises an allocation of the total cash 1, Statement of Movement on General Fund Balances LPFA is not required to be compliant with SERCOP (Service Reporting Code of Practice) under the Local Government Act The LPFA is not governed by the act. 23. Financial Instruments The operational account only holds cash as mentioned in note 21 above as well as payables and receivables, these are covered in notes 18 and

92 Residual Liabilities Accounts 92

93 11 Residual Liabilities Statement of Movement in Reserves for the year ended Revenue Reserve Pension Reserve Greater London Inner London Total Reserves Greater London Inner London Total Pension Reserves Total Reserves Balance at 31 March ,155 1,277 9,432 (87,888) (159,393) (247,281) (237,849) Movement in Reserves during 2014/15 Surplus or (deficit) on the provision of services 5,090 6,458 11,548 11,548 Realised profit on sale of assets Contributions for unfunded benefits (7,490) (11,796) (19,286) 7,490 11,796 19,286 0 Net return on pension assets 3,030 5,528 8,558 (3,030) (5,528) (8,558) 0 Remeasurements of the Net Defined Benefit Liability (5,174) (9,978) (15,152) (15,152) Net movement in reserves 1, ,619 (714) (3,710) (4,424) (2,805) Balance at 31 March 2015 c/forward 9,584 1,467 11,051 (88,602) (163,103) (251,705) (240,654) Movement in Reserves during 2015/16 Surplus or (deficit) on the provision of services 6,226 8,559 14,785 14,785 Realised profit on sale of assets 0 Contributions for unfunded benefits (7,186) (11,822) (19,008) 7,186 11,822 19,008 0 Net return on pension assets 2,041 3,773 5,814 (2,041) (3,773) (5,814) 0 Remeasurements of the Net Defined Benefit Liability 2,867 5,582 8,449 8,449 Net movement in Reserves 1, ,591 8,012 13,631 21,643 23,234 Balance at 31 March 2016 carried forward 10,665 1,977 12,642 (80,590) (149,472) (230,062) (217,420) 93

94 Comprehensive Income and Expenditure Statement for the year ended 31 March 2015 Notes 31 March 2016 Greater London 000 Inner London Total Greater London Inner London Total (17,808) (24,861) (42,669) Unfunded benefits recovered (17,504) (24,887) (42,391) 9,499 12,507 22,006 Unfunded benefits 8,994 12,187 21, Administration costs (8,036) (11,986) (20,022) Cost Of Services (8,237) (12,332) (20,569) Financing and Investment Income and Expenditure Loan stock interest ,030 5,528 8,558 Interest on Pension scheme assets 2,041 3,773 5,814 (221) 0 (221) Interest and investment income (165) 0 (165) (5,090) (6,458) (11,548) (Surplus) or Deficit on Provision of Services (6,225) (8,559) (14,784) (799) 0 (799) Surplus or deficit on revaluation of stock ,174 9,978 15,152 Remeasurements of the Net Defined Benefit Liability (2,867) (5,582) (8,449) 4,375 9,978 14,353 Other Comprehensive Income and Expenditure (2,867) (5,582) (8,449) (715) 3,520 2,805 Total Comprehensive Income and Expenditure (9,092) (14,141) (23,233) 94

95 Balance Sheet as at 31 March 2015 Notes 31 March 2016 Greater London Inner London Total Greater London Inner London Total 24,684 1,393 26,077 6 Asbestosis Reimbursement 28,855 1,345 30,200 24,684 1,393 26,077 Non-current assets 28,855 1,345 30, Receivables Current reimbursement due ,578 2,207 25,785 Cash and Cash equivalents 26,314 4,876 31,190 23,580 2,936 26,516 Current Assets 26,341 5,687 32,028 (64) (1) (65) 7 Trade and other payables (663) (1,733) (2,396) (3,076) (687) (3,763) 6 Provision (4,841) (426) (5,267) (3,140) (688) (3,828) Current liabilities (5,504) (2,159) (7,663) (31,192) (2,174) (33,366) 6 Provision (34,679) (2,896) (37,575) (4,348) 0 (4,348) 8 LCC Stock (4,348) 0 (4,348) (88,602) (163,103) (251,705) 9 Unfunded pension liability (80,590) (149,472) (230,062) (124,142) (165,277) (289,419) Non-current liabilities (119,617) (152,368) (271,985) (79,018) (161,636) (240,654) Net liabilities (69,925) (147,495) (217,420) Reserves 9,584 1,467 11,051 Revenue reserves 10,665 1,977 12,642 (88,602) (163,103) (251,705) 9 Pension reserve (80,590) (149,472) (230,062) (79,018) (161,636) (240,654) Total Reserves (69,925) (147,495) (217,420) 95

96 Cashflow Statement 2014/15 Notes 2015/ ,549 Net surplus/(deficit) on the provision of services 14,784 10,571 Adjustments to net surplus/(deficit) on the provision of services for non cash movements 11 (17,858) 22,120 Cash flows from Operating Activities (3,074) (15,152) Transfer to Pension Fund from reserve 8,449 6,968 Net Cash flows from Operating Activities 5,375 Investing Activities (137) Interest paid (136) 222 Interest received 165 7,053 Net increase or decrease in cash and cash equivalents 5,404 18,732 Cash and cash equivalents at the beginning of the reporting period 25,785 25,785 Cash and cash equivalents at the end of the reporting period 31,189 96

97 12 Accounts Notes to the Residual Liability 1. General information The LPFA makes payments of annual statutory compensation following the abolition of the former Greater London Council (GLC) and Inner London Education Authority (ILEA). These payments are financed by way of a levy on all London Boroughs in respect of former Greater London liabilities and on Inner London Boroughs in respect of Inner London liabilities. The residual liabilities accounts include substantial provisions for injury claims from former employees of the GLC and ILEA in relation to asbestosis. The costs of these claims will be met through a levy on London boroughs, and so the accounts also include a re-imbursement to offset most of the provision, the balance being met by funds already taken from London boroughs, and held in reserves. 2. Summary of significant accounting policies General Principles The Statement of Accounts summarises LPFA s transactions for the 2015/16 financial year and its position at year-end of 31 March It has been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2015/16: based upon International Financial Reporting Standards (IFRS). The financial statements have been prepared on a going concern basis. LPFA is not required to be compliant with SERCOP (Service Reporting Code of Practice) under the Local Government Act LPFA is not governed by the act. Accruals of Income and Expenditure Activity is accounted for in the year that it takes place, and not when cash payments are made or received. In particular: Fees and charges are accounted for as income at the date LPFA provides the relevant services. Supplies are recorded as expenditure when they are consumed. Where income or expenditure have been recognised but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the balance sheet. Where it is doubtful that debts will be settled, the balance of debtors is written down and a charge is made to revenue for the income that might not be collected. 97

98 Cash and Cash Equivalents Cash and cash equivalents comprise cash in hand and demand deposits, together with short term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of change in value. An investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Bank overdrafts which are repayable on demand and which form an integral part of an entity s cash management are also included as a component of cash and cash equivalents. Cash balances not required for immediate use are invested in accordance with LPFA s Treasury Management Strategy. Interest earned on LPFA s balances is credited to the Comprehensive Income and Expenditure Statement during the year and appropriate accruals are made at year-end. Post Balance Sheet Events These are events that occur between the end of the reporting period and the date the Statement of Accounts are published. Events taking place after the date of publication are not reflected in the Statement of Accounts. There are two types of event possible: Adjusting - Those events that are evidence of conditions that existed at the Balance Sheet date, if these are material the statements and notes are adjusted to reflect their impact. Non-adjusting - Those events that are indicative of conditions that arose after the Balance Sheet date, the financial statements and notes are not adjusted for the impact of such events but additional explanatory notes would be provided. Provisions Provisions are made where an event has taken place that gives LPFA an obligation that in probability, may require settlement by transfer of economic benefits, but where the timing of the transfer is uncertain. Provisions are charged to the comprehensive income and expenditure statement in the year that LPFA becomes aware of the obligation, based on the best estimate of the likely settlement. When payments are eventually made they are charged directly to the provision set up on the balance sheet. Estimated settlements are reviewed at the end of each financial year and the provision increased or reversed back to the revenue account if it becomes more likely than not that a transfer of benefits will not be made or a lower settlement than anticipated could be made. Contingent liabilities Contingent liabilities arise where an event has taken place that gives LPFA a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of LPFA. These are not recognised as liabilities in the accounts but disclosed in the financial statements where it is probable that an outflow of economic benefit to settle the obligation is more than remote. Overheads LPFA is not required to be compliant with SERCOP (Service Reporting Code of Practice) under the Local Government Act However, directly attributable 98

99 overheads are charged to the appropriate service areas within the Residual Liabilities Account. Interest on Balances Cash balances not required for immediate use are invested in accordance with LPFA Treasury Management Strategy. Interest earned on LPFA s balances is credited to the Income and Expenditure Account during the year and appropriate accruals are made at year-end. Financial Assets / Liabilities Financial Assets/Liabilities represents transactions, with a contract, that result in a financial asset for one entity and a financial liability for another. Financial assets are recognised by LPFA on the Balance Sheet, initially at their fair value, only when goods or services have been provided or rendered to a third party. Financial liabilities are recognised, initially at their fair value, when the goods or services ordered from a third party have been received by LPFA and the third party has performed its contractual obligations. Responsibility rested with LPFA for the administration of two outstanding undated loan stocks which were originally issued by the former London County Council. These loan stocks were included at their nominal value in the Residual Liabilities Balance Sheet. The loan stocks were substantially repurchased in 2005/06. LPFA held a war loan to offset the interest payments attributable to the loan stocks but this was redeemed in 2014/15. Reserves LPFA sets aside specific amounts as reserves for future policy purposes or to cover contingencies. Reserves are created by appropriating amounts in the Statement of Movement on the General Fund Balance. Where expenditure to be financed from a reserve is incurred, it is charged to the Income and Expenditure Account and the reserve is then appropriated back also so that there is no net charge to LPFA at this point. General reserve The General Reserve is used to fund unexpected short term costs, principally relating to asbestosis claims. Certain reserves are kept to manage accounting processes and do not represent usable resources for LPFA. This is the pension reserve. Pension Reserve The Pension Reserve is not cash backed and represents the actuarially calculated deficit between the value of all pension liabilities and the pension assets held. Accounting for Retirement Benefits The financial statements disclose the cost of providing retirement benefits and related gains, losses, assets and liabilities. The effect of recognising retirement benefits in the balance sheet is a net liability and a pension reserve in the combined residual liabilities accounts. This relates to the compensation payments which are met on an annual basis by levies on London boroughs. 99

100 These liabilities reflect the current actuarial value of future payments and do not affect income and expenditure in 2015/16. The change in the net pension liability is analysed into the following components: Current service cost: the increase in pensions liabilities as a result of a years service; Past service costs: The increase in liabilities as a result of changes to plan arrangements in the current year with subsequent effects to years of service earned by the employee in previous year; Interest cost: the increase in the present value of the liabilities during the year as a result of moving one year closer to being paid; Change in financial assumptions: changes in the present value of the defined benefit obligation resulting from a change in financial assumptions made by the actuary; Change in demographic assumptions: changes in the present value of the defined benefit obligation resulting from a change in demographic assumptions made by the actuary; Experience loss/(gain) on defined benefit obligation: changes in the present value of the defined benefit obligation resulting from the effects of the differences between the previous actuarial assumptions and what has actually occurred; Unfunded pension payments: the decrease in scheme liabilities due to payments made to pensioners in the year. 3. Financial Risk Management The LPFA activities expose it to a variety of financial risks in respect of financial instruments. These have been outlined in the financial statements of the pension fund. 4. Critical Accounting Estimates and Judgment Provision LPFA have set aside a provision for its liabilities to meet the costs of asbestosis claims from former employees of the GLC and the ILEA. The provision is based on knowledge of existing claims and estimates of future claims liabilities. LPFA also has an estimate of future reimbursement of these costs from the London boroughs. The LPFA has been exploring the possibility that insurers of the GLC and ILEA may be liable in part for these costs as well as awaiting the impact that recent legislation in this area may have on future costs. Any potential impact will take a number of years to assess. Pensions Liability Estimation of the net liability to pay pensions depend on a number of complex judgements relating to the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on pension fund assets. A firm of consulting actuaries are engaged to provide LPFA with expert advice about the assumptions to be applied. However, because these judgements cannot be determined with certainty, actual results could be materially different from the assumptions and estimates. 100

101 5. Segmental Information Management do not report segmental information in their monthly management accounts, hence the financial statements for the Residual Liabilities Account have been presented reflecting the non segmental nature of the entity s operations. 6. Asbestosis Provision The GLC is responsible for the settlement of claims made by former employees of the GLC and the ILEA who have become injured as a result of exposure to asbestos. Due to the long periods over which this illness can lay dormant the normal deadline for submitting injury claims has been waived. This means that the LPFA has liabilities estimated to last until about A provision has been established for the injury claims. The provision is based on knowledge of existing claims and estimates of future claims liabilities. The costs have been estimated in discussion with our legal advisers and take into account previous experience of claims over the last 20 years. The costs are met through the levy on the London boroughs. The future profile of claims is used to smooth any changes in the levy to, as far as possible, limit any changes to the levy, until it gradually decreases as the final liabilities are met. The LPFA does not fund these costs as they are passed on to the appropriate Greater London or Inner London Borough Councils who have a legal duty to reimburse the LPFA. As there is certainty that these costs will be reimbursed the future costs are offset by the reimbursed future income in the Comprehensive Income and Expenditure Statement and are shown separately on the balance sheet of the Residual Liability Fund. The movement in the asbestosis provision over the year is as follows. 101

102 2014/ /16 Greater London Inner London Total ASBESTOSIS PROVISION Greater London Inner London Total (30,473) (2,918) (33,391) At 1 April (34,268) (2,860) (37,128) (4,388) (420) (4,808) Increase to provision (5,995) (536) (6,531) ,071 Amount used during the year (34,268) (2,860) (37,128) At 31 March (39,520) (3,322) (42,842) (31,192) (2,173) (33,365) Non-current (34,679) (2,896) (37,575) (3,076) (687) (3,763) Current (4,841) (426) (5,267) (34,268) (2,860) (37,128) (39,520) (3,322) (42,842) Amounts recoverable are as follows: 24,684 1,393 26,077 Asbestosis reimbursement 28,855 1,345 30, Current Reimbursement due ,684 1,393 26,077 28,855 1,345 30, Short Term Liabilities 2014/ /16 Greater London Inner London Total SHORT TERM LIABILITIES Greater London Inner London Total Tax Due on payments made (12) 0 (12) Unclaimed interest and principal (12) 0 (12) (44) (1) (45) Sundry Creditors (654) (1,732) (2,386) (10) 0 (10) Accrued stock interest payable (64) (1) (65) (664) (1,732) (2,396) 102

103 8. LCC Stock The LPFA is responsible for London County Council loan stocks. These stocks are undated, unsecured with a fixed interest due annually and LPFA is exploring buying back the remaining LCC stock. The financial risks attached to these loans are managed by the loan stock being at a fixed rate of interest, and being undated. The nominal value of the loans stocks are provided below. These are part of the Greater London levy responsibilities. 2014/15 LCC Stocks 2015/ ,875 3% London County Council Stock 3, % London County Council Stock 473 4,348 4, Retirement Benefit Obligations The pension liability at 31 March has been determined by the LPFA s actuary Barnett Waddingham in accordance with IAS 19: Employee Benefits. The LPFA is also responsible for compensation payments arising from added years in respect of former staff of the GLC and ILEA and the London Residuary Body (LRB). These payments are recoverable from levies on the London Boroughs. The LPFA inherited some staff from the GLC, ILEA and LRB. In circumstances where staff leave the LPFA with retained staff benefit entitlement the cost of the discretionary added years is also borne by the levy. In relation to retirement benefits, statutory provisions require the General Fund balance to be charged with the amount payable by LPFA to the pension fund or directly to pensioners in the year, not the amount calculated according to the relevant accounting standards. In the Movement in Reserves Statement, this means that there are appropriations to and from the Pensions Reserve to remove the notional debits and credits for retirement benefits and replace them with debits for the cash paid to the pension fund and pensioners and any such amounts payable but unpaid at the year-end. The negative balance that arises on the Pensions Reserve thereby measures the beneficial impact to the General Fund of being required to account for retirement benefits on the basis of cash flows rather than as benefits are earned by employees. 103

104 Life Expectancy from age 65 (years) Greater London: The assumed life expectations from age 65 are: 31-Mar Mar-16 Retiring today: Males Females Retiring in 20 years: Males Females Inner London: The assumed life expectations from age 65 are: 31-Mar Mar-16 Retiring today: Males Females Retiring in 20 years: Males Females

105 31 March March 2016 RETIREMENT OBLIGATIONS BENEFIT Greater London Inner London The amounts recognised in the balance sheet are determined as follows: Total Greater London Inner London Total Present value of funded obligations Impact of asset ceiling Present value of unfunded obligations 88, , ,705 80, , ,062 Unrecognised past service costs Pension Liability 88, , ,705 80, , ,062 The movement in the present value of unfunded obligations over the year is as follows: At 1 April 87, , ,281 88, , ,705 Current service cost Interest cost 3,030 5,528 8,558 2,041 3,773 5,814 Change in financial assumptions 5,174 9,978 15,152 (2,867) (5,582) (8,449) Change in demographic assumptions Past Service Costs Experience loss/(gain) on defined benefit obligation Unfunded pension payments (7,490) (11,796) (19,286) (7,186) (11,822) (19,008) At 31 March 88, , ,705 80, , ,

106 31 March March 2016 Greater London Inner London Total Greater London Inner London Total Amounts recognised in the income statement are as follows: Service cost Administration expenses Net interest on the defined liability (asset) 3,030 5,528 8,558 2,041 3,773 5,814 Total 3,030 5,528 8,558 2,041 3,773 5,814 Re-measurements in Other Comprehensive Income Return on plan assets in excess of interest Other actuarial gains/(losses) on assets Change in financial assumptions Change in demographic assumptions Experience gain/(loss) on defined benefit obligation Changes in effect of asset ceiling (5,174) (9,978) (15,152) 2,867 5,582 8, Re-measurements (5,174) (9,978) (15,152) 2,867 5,582 8,449 Financial Assumptions for GL and IL: 31-Mar Mar Mar-14 %p.a. Real % %p.a. Real % %p.a. Real % RPI Increases CPI Increases Salary Increases Pension Increases Discount Rate

107 Sensitivity Analysis for GL: Adjustment to discount rate +0.1% 0.0% -0.1% Present Value of Total Obligation 79,893 80,590 81,294 Projected Service Cost Adjustment to long term salary increase Present Value of Total Obligation +0.1% 0.0% -0.1% 80,590 80,590 80,590 Projected Service Cost Adjustment to pension increases and deferred revaluation Present Value of Total Obligation +0.1% 0.0% -0.1% 81,299 80,590 79,887 Projected Service Cost Adjustment to mortality age rating assumption Present Value of Total Obligation +1 year None -1 year 83,549 80,590 77,736 Projected Service Cost

108 Sensitivity Analysis for IL: Adjustment to discount rate +0.1% 0.0% -0.1% Present Value of Total Obligation 148, , ,841 Projected Service Cost Adjustment to long term salary increase Present Value of Total Obligation +0.1% 0.0% -0.1% 149, , ,472 Projected Service Cost Adjustment to pension increases and deferred revaluation Present Value of Total Obligation +0.1% 0.0% -0.1% 150, , ,102 Projected Service Cost Adjustment to mortality age rating assumption Present Value of Total Obligation +1 year None -1 year 154, , ,178 Projected Service Cost Administration Expenses The administration expenses are the costs charged to the residual liabilities accounts from the operational accounts and comprise a share of the costs relating to administering the residual liabilities responsibilities. The costs for 2015/16 were 273k for the Greater London levy and 368k for the Inner London levy, these remain unchanged from 2014/

109 11. Reconciliation of Non-Cash Movements 2014/ / ,424 Transfer to pension reserve (21,643) 4,389 Proceeds on sale of assets (Increase)/Decrease in receivables (106) 48 Increase/(Decrease) in payables 2, Interest paid plus adjustment to interest owed 136 (222) Interest received (165) 3,737 Movement in provisions 5,713 (2,117) 10,571 (Increase) decrease in asbestos reimbursement expenditure through asbestos provision (4,123) (17,858) 12. Related Party Transactions The LPFA Pension Fund Accounts and the LPFA Operational Accounts are related parties and transactions relating to such are disclosed elsewhere in the accounts. 13. Cash and Cash Equivalents The cash at the bank and on short term deposit totals 17,999k, this was 25,785k in 2014/ Receivables 2014/ / Central Government Bodies Other Local Authorities Other Entities and Individuals Payables 2014/ / Central Government Bodies 6 24 Other Local Authorities 2, Other Entities and Individuals ,

110 16. Financial Instruments Aside from the receivables and payables which are covered in notes 14 and 15 and the LCC stock covered in Note 8 the LPFA also has a cash balance on the residual liabilities accounts. A small balance is maintained with the LPFA s bank, Lloyds, for ongoing costs, and the remainder is pooled with the GLA. The GLA has 1.14% of the pooled money in Corporate Bonds compared to 2.56% at 31 March 2015, with the remainder on deposit at various banks. The split is demonstrated in the graph below. As at 31 st March 2016 the LPFA held 26,052k with the GLA compared to 25,553k at 31 st March 2015, the balance each year being held within the LPFA bank account. As at 31 st March 2016: As at 31 st March 2015: 110