Scottish Parliamentary Contributory Pension Fund. Annual Accounts

Transcription

1 Scottish Parliamentary Contributory Pension Fund Annual Accounts

2 Contents Page Managers Report 1 Report of the Actuary 6 Statement of Managers Responsibilities 10 Statement on Internal Control 11 Independent Auditor s Report 13 Fund Account 15 Net Assets Statement 16 Notes to the Financial Statements 17 Account Direction 23

3 Managers Report Background 1. The Scottish Parliamentary Contributory Pension Fund (SPCPF) was set up from 6 May 1999 under transitional provisions of the Scotland Act The SPCPF provides for the payment of pensions to former Members and Office Holders of the Scottish Parliament and, subject to certain conditions, to their surviving partners and children. 2. The Pension (Increase) Act 1971 and Section 59 of the Social Security Pensions Act 1975 (as amended) are applicable to pensions paid from the SPCPF. 3. The legislation that governs the SPCPF is The Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order 1999 (S.I No.1082) ( the 1999 Order ). 4. Since 1999 there have been a number of significant legislative changes at a UK level which have affected all pension schemes. The Finance Act 2004 and the Pensions Act 2004 transformed the tax and legal environment in which pensions operate in the UK, necessitating changes to the pension scheme rules. The Parliament agreed on 27 June 2007 that, as a result of these legislative changes, a Scottish Parliamentary Pension Scheme Committee should be established to develop proposals for new scheme rules for consideration by Parliament. The Committee s report was debated and approved by the Parliament on 26 June The Scottish Parliamentary Pensions Bill was then introduced at Stage 1 on 26 September The Bill passed Stage 2 on 3 December 2008, Stage 3 on 22 January and received Royal Assent on 25 February The Scottish Parliamentary Pensions Act 2009 was therefore established with the new scheme rules coming into force from 1 September More information on the changes is contained in paragraph 19 of the Managers Report. Management of Fund 5. The Scottish Parliamentary Corporate Body (SPCB) are the managers of the SPCPF. The members of the Corporate Body during the current financial year, appointed following votes in the Scottish Parliament in at the start of the new session of Parliament, were: Name Alex Fergusson MSP, Presiding Officer Alex Johnstone MSP Tricia Marwick MSP Tom McCabe MSP Mike Pringle MSP Appointed 14-May May May May May-2007 Page 1

4 Other parties appointed in connection with the SPCPF 6. The following professional parties are appointed in connection with the SPCPF: Responsibility Name Appointed by Actuarial advice Government Actuary Department Schedule 1, 1999 Order External auditor Audit Scotland Schedule 1, 1999 Order Investment Management Baillie Gifford SPCB Bankers Bank of Scotland SPCB Scheme Administrator Scottish Public Pensions Agency SPCB Legal Advice Legal Advisor to the SPCB SPCB The Managers have also appointed officials from the Scottish Parliament, Human Resources Office as their Secretariat. The Scottish Parliamentary Contributory Pension Fund is an Inland Revenue registered scheme for the purposes of the Finance Act This means that certain of the scheme s income and chargeable gains are free of taxation. Preparation of annual accounts 7. The SPCPF is a public service pension scheme and as such exempt from the majority of the requirements of the 1995 Pensions Act including those relating to accounts. However, the accounts have been prepared, as far as appropriate, in accordance with the Statement of Recommended Practice, Financial Reports of Pension Schemes issued in 2007, in order to conform to best practice reporting requirements. A statement of the Managers responsibilities with regard to the preparation of the accounts is on page 10. This includes a comment that the financial statements have been prepared on a going concern basis. Benefits payable 8. The main provisions of the scheme are: an immediate pension of one fiftieth of final salary for each year of service on retirement at age 65; an immediate pension on retirement at any time on the grounds of ill health; an abated pension paid on retirement at any time on attainment of age 50 and completion of not less than 15 years service; a five eighths partners pension; childrens pensions (at the rate of one quarter of the basic or prospective pension of the Member if there is one child or three eighths if there are two or more children); a lump sum death gratuity on death in service equal to three years salary with provision for more than one nominee; the purchase of added years; transfer of pension rights (into and out of the scheme); the opportunity to contribute to an in-house Additional Voluntary Contribution (AVC) scheme. Page 2

5 Scheme Membership 9. As at 31 March 2009 the SPCPF consisted of 129 active MSP scheme members plus the Lord Advocate and Solicitor General for Scotland. Of the 129 active MSP scheme members 17 were also accruing additional benefits simultaneously in their capacity as Office Holders. The qualifying Office Holder positions were 5 Cabinet Secretaries, 10 Ministers and 2 Deputy Presiding Officers. There were 43 deferred pensioners (former pension scheme members who were not yet in receipt of a pension) and 22 pensions in payment at the year end. Movement in the membership of the scheme during the year included 1 new scheme member and 1 leaver (death in service). One deferred member moved to become a pensioner. Income 10. Contributions income to the SPCPF is derived from two main sources (a) contributions from Members of the Scottish Parliament and holders of qualifying office under article C2 (3) of the 1999 Order (SI 1999 No. 1082) and (b) contributions from the Scottish Consolidated Fund paid under the terms of article D3 of the 1999 Order. Investment income earned within the Baillie Gifford Fund is reinvested in the pooled fund. In addition, transfers of pension benefits into the SPCPF amounted to 47,773 in ( 65,334 in ). 11. Members and qualifying office-holders contribute 6% of their salaries to the SPCPF. This rate has been in effect since 7 May Pensions in respect of the offices of First Minister and Presiding Officer are paid from the Scottish Consolidated Fund but the holders of these offices contribute to the Pension Fund in respect of their MSP salaries. The contribution from the Scottish Consolidated Fund has been 20.3% of salaries of members and office holders from 1 April This will increase to 21% of salaries of members and office holders from 1 April Investment details and performance 12. The Pensions Act 1995, Section 35, requires that the Trustees of pension funds prepare and maintain a Statement of Investment Principles. Whilst the SPCPF is statutorily exempt from this requirement, the Managers have produced such a document through a desire to comply with best practice for funded schemes. A copy of this is available on request. 13. The statement includes a policy on investment and explains that as this is a relatively new scheme, contributions are likely to exceed benefits for many years. Accordingly, it should not be necessary to sell assets to pay benefits in the medium term; this enables the investment strategy to be predominantly equity based increasing the probability of a higher investment return on the fund s assets over the long term. The risk of this type of investment has been considered. The initial size of the scheme s assets are not sufficient to allow a widely diverse portfolio and therefore it was decided to invest with a single pooled fund run by an independent management company. 14. The Managers delegated responsibility for the investment management of the SPCPF entirely to Baillie Gifford. Custody of the investments, the receipt of income and the recovery of tax remain the responsibility of the Managers. 15. The 1999 Order requires the Managers of the Fund to review any acquisition or disposal of the assets of the Fund within six months of such acquisition or disposal. Initially, until the size of the Fund has become sufficiently large to allow investment directly into bonds, stocks and shares, the Managers have decided to direct investment into a single pooled fund, the Baillie Gifford Managed Pension Fund. Baillie Gifford s charge for investment management and cost associated with the Fund is 0.53% per annum of the value of the Page 3

6 Fund accrued on a daily basis. Baillie Gifford is required to manage the Fund s assets within the parameters set by the Statement of Investment Principles and report the performance of the Fund on a regular basis. 16. Investing in the Baillie Gifford Managed Pension Fund began on 4 August In the period 1 April 2008 to 31 March ,090,350 was invested. This compares with 1,969,208 invested in the period 1 April 2007 to 31 March At 31 March 2009 the market value of the units held within the Fund was 17,126,545 ( 19,495,256 on 31 March 2008). The comparative value of the units were 2.86 at 31 March 2002, 2.29 at 31 March 2003, 2.86 at 31 March 2004, 3.17 at 31 March 2005, 4.20 at 31 March 2006, 4.36 at 31 March 2007, 4.32 at 31 March 2008 and 3.43 at 31 March Actuarial position of the Fund 17. The Government Actuary was required to produce an initial actuarial valuation of the assets and liabilities of the SPCPF as at 6 May 1999 and thereafter to conduct a full valuation at three yearly intervals. The last valuation dated 20 March 2009 covered the period 1 April 2005 to 31 March It found that at the valuation date the value of the assets of the SPCPF fell short of the value of the liabilities by 0.23 million. The Government Actuary, at that review, increased the contribution rate equivalent to 20.3% of salary to 21% from 1 April A Report of the Actuary for the period 1 April 2008 to 31 March 2009 can be found at pages 6 to 9 of this Account. Main changes to the Scheme Rules from 1 September A number of significant changes were required to be made to the scheme rules by April 2011 in order to comply with primary legislation such as the Finance Act 2004 and the Pensions Act The Scottish Parliamentary Pension Scheme Bill received Royal Assent on 25 February 2009 and became the Scottish Parliamentary Pension Scheme Act. Full details of the Act are available on the Scottish Parliament s web site.the main scheme rule changes are as follows: Trustees and scheme administration - Appointment of Trustees to manage the scheme rather than SPCB having the role of scheme Trustees. Provision for trustees to employ staff and advisers - e.g. scheme actuary, auditors, pension legal expert and investment managers which are currently appointed by SPCB Scheme membership participating membership of the pension scheme will no longer be available to those age 75 and over. Revised pension arrangements for the First Minister and Presiding Officer where existing arrangements will be replaced with the same pension provisions as for all other office-holders. Pension entitlement option to accrual at 1/40 th or 1/50 th. The contribution rate for the 1/40 th scheme will be 11% of salary for members. Early retirement the minimum early retirement age will increase from 50 to 55. Also removal of the qualifying period of 15 years service for early retirement thus opening up early retirement to all members aged 55 and over regardless of age and service. Ill-health provision a revised approach to ill health provision adopting a two tier approach for serious ill-health and ordinary ill-health. Lump sum death benefits death in service lump sum benefit increased from three to four times salary. Page 4

7 Contact address 20. Further information and scheme documentation about the Scottish Parliamentary Contributory Pension Fund, including members own positions, can be obtained from The Scottish Parliament, Human Resources Office, Edinburgh, EH99 1SP. ALEX FERGUSSON MSP Date: 29 October 2009 Presiding Officer Approved on behalf of the Scottish Parliamentary Corporate Body as Managers of the Scottish Parliamentary Contributory Pension Fund. Page 5

8 Scottish Parliamentary Contributory Pension Fund Report of the Actuary Accounting Year ended 31 March Data 1.1 At the end of the accounting year 31 March 2009, there were 129 Members of the Scottish Parliament (MSPs) accruing benefits under the Scottish Parliamentary Pension Scheme and 19 Office Holders (including 2 Law Officers and 2 Deputy Presiding Officers). Pensionable payroll for the financial year 2008/2009 was approximately 7.7 million. There were 22 pensions in payment (including two dependants) with an aggregate pension of approximately 148,500 per year and 43 deferred member and office holder pensioners as at 31 March Liabilities 2.1 The capitalised value as at 31 March 2009 of expected future benefit payments under the Scottish Parliamentary Contributory Pension Fund, for benefits accrued in respect of employment prior to 31 March 2009, has been assessed using the methodology and assumptions set out in Sections 4 and 5 below. The key discount rate used for calculating liabilities at 31 March 2009 is 3.8%. The total liability as at 31 March 2009 is 21.2 million. 2.2 Liability Movement Liabilities of SPCPF at 31 March Current service cost (net of employee contributions) 1.8 Employee contributions 0.5 Past service costs 0.0 Interest on pension liabilities 1.5 Benefits paid (0.1) Actuarial loss (gain) (3.5) Liabilities of SPCPF at 31 March The actuarial gain can be further analysed as follows (all figures are shown in m and as a percentage of scheme liabilities as at 31 March 2009): Experience loss arising % Effect of change in discount rates (3.8) (17.8%) Actuarial loss (gain) (3.5) (16.4%) Page 6

9 Scottish Parliamentary Contributory Pension Fund Report of the Actuary 3 Accruing Cost 3.1 The cost of benefits accruing for each year of service is met partly by a specified contribution from members (6% of pay), with the Scottish Parliamentary Corporation meeting the balance of the cost of the benefits. The total cost of benefits accruing in the year 2008/2009 has been assessed using the methodology and assumptions set out in Sections 4 and 5 below. The key discount rate used for determining the accruing cost in 2008/2009 is 3.1%. The results are as follows: Standard Contribution Rate (excluding expenses and insurance) % of Pensionable Pay 28.6% Members Contribution Rate 6.0% Employer s share of standard cost 22.6% Allowance for expenses and insurance 1.0% Total Employer s cost for accruing benefits 23.6% 3.2 The actual contribution rate paid by the employer, 20.3% of pensionable salary, including ½ % to cover the expense of running the Scheme and 0.8% contribution toward the scheme deficit, is lower than the cost of the accruing benefits shown above. This is because the employer s actual contributions are based on the accruing cost assessed by reference to the long term view of real investment yields, whereas the accruing annual cost disclosed for accounts purposes is based on current market yields on bonds. At present, the current market yield is lower than the expected long term real yield, which results in a higher contribution rate being disclosed in the Scheme s accounts. 3.3 In relation to the pensionable payroll for the financial year, the Scottish Parliamentary Corporations (Consolidated Fund) charges in cash terms were 1.6 million for the financial year 2008/2009. Page 7

10 Scottish Parliamentary Contributory Pension Fund Report of the Actuary 4 Methodology 4.1 The value of the liabilities as at 31 March 2009 has been based on the full actuarial valuation of the scheme that was carried out as at 31 March 2008, but using the updated discount rate and other assumptions. The liability as at 31 March 2008 has been rolled forward to 31 March 2009 in line with the assumptions underlying the liability calculations, allowing for expected new benefit accruals, for the actual level of benefits paid out and for known levels of pension increases. 5 Assumptions 5.1 The principal financial assumptions adopted for the pension assessments made for accounting purposes are derived in the same way as for funded pension schemes in the private sector. This basis is driven by the AA corporate bond rate as at the end of the accounting year. 5.2 At 31 March 2008, the discount rate in excess of price increases was assessed as 3.1% p.a. For this statement as at 31 March 2009, a higher discount rate is used, because AA corporate bond yields have risen since The discount rate for pension liabilities has risen to 3.8% with effect from 31 March This results in the value of the liabilities as at 31 March 2009 being only marginally higher than as at 31 March The main financial assumption used for assessing the cost of pensions accruing over the year 2008/09 is the discount rate applicable at the start of the year ie 3.1%. A lower cost for pensions accruing in 2009/10 will arise if the discount rate applicable at 31 March 2009 (i.e. 3.8%) is to be used. 5.4 The demographic assumptions adopted for the assessments are as used in the full actuarial valuation of the scheme as at 31 March Page 8

11 Scottish Parliamentary Contributory Pension Fund Report of the Actuary 6 Notes 6.1 Sections 2 and 3 of this Statement are based on the results of the actuarial valuation as at 31 March 2008, but updated in line with the assumptions described above, and rolled forward to 31 March The pension benefits taken into account in this assessment are those normally provided from the rules of the scheme, including normal retirement benefits, illhealth retirement benefits, and benefits applicable following the death of the member. D G Ballantine July 2009 Government Actuary's Department Page 9

12 Statement of Managers Responsibilities The Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order 1999 requires the Managers of the Scottish Parliamentary Contributory Pension Fund (SPCPF) to prepare annual accounts in such a form and in such manner as the Auditor General for Scotland may direct. The financial statements for the year ended 31 March 2009 were prepared on an accruals basis, with the exception of transfer receipts which were recorded on a cash basis, to give a true and fair view of the financial transactions of the SPCPF during the year, and of the disposition at 31 March 2009 of its assets and liabilities, other than liabilities to pay benefits after the end of the Fund year. In preparing those financial statements, the Managers were required to: observe the accounts direction issued by the Auditor General for Scotland, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis; make judgements and estimates that were reasonable and prudent; state whether applicable accounting standards were followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on a going concern basis, on the presumption that the SPCPF will continue in operation. The Managers are responsible for the keeping of proper accounting records, for ensuring that proper financial procedures are followed and for ensuring that the accounting records are capable of producing statements which comply with the requirements of the 1999 Order. The Managers are also responsible for the regularity and propriety of public finances provided by the Scottish Consolidated Fund, for safeguarding the assets of the SPCPF and for taking reasonable steps for the prevention and detection of fraud and other irregularities. Page 10

13 Statement on Internal Control Scope of Responsibility This statement is given in respect of the accounts for the Scottish Parliamentary Contributory Pension Fund (SPCPF). We, the Managers, acknowledge our responsibility for ensuring that an effective system of internal control is maintained and operated to safeguard the public funds and assets connected with the SPCPF. The SPCPF is a statutory scheme and operates within a legislative framework. Officials from the Scottish Parliamentary Corporate Body (SPCB) and the Scottish Public Pensions Agency (SPPA) provide a full secretariat and administrative service to the Managers. Purpose of System of Internal Control The system of internal control is based on an ongoing process designed to identify the principal risks to the achievement of the organisation s policies, aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. This process has been fully implemented in the year ended 31 March 2009 and has been in place up to the date of approval of the annual accounts and accords with guidance from the Scottish Public Finance Manual. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve the organisation s policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The approval of pension awards for routine retirement (i.e. due to age or non-return to the Parliament) is delegated to the SPPA. The Managers only approve pension awards in other circumstances (e.g. ill health). Appointed officials of the SPCB make payment of all awards. Managing Risk The system of internal control and risk management is based on a framework of regular management information, financial regulations, administrative procedures including segregation of duties, and a system of delegation and accountability. In particular it includes: all funds are controlled by the appointed officials of the SPCB through a designated Bank of Scotland account; the Managers delegated responsibility for the investment management of the SPCPF entirely to Baillie Gifford. Custody of the investments, the receipt of income and the recovery of tax remain the responsibility of the Managers; regular reconciliations of the funds with the investment monies transferred are conducted by the appointed officials of the SPCB. The Investment Managers produce monthly reports on stock transactions and valuations; regular reconciliations are conducted by the appointed officials of the SPCB of the designated Bank of Scotland account; separation of duties exists between appointed officials of the SPCB whereby the official initiating a payment cannot authorise the production of the payable instrument or despatch the instrument; and the Managing Trustees have free access to all documents and records. Page 11

14 Review of Effectiveness The SPCB and the Scottish Government including SPPA are both subject to review by internal audit who operate to standards defined in the Government Internal Audit Manual. The work of internal audit units is informed by an analysis of the risk to which the SPCB and the Scottish Government are respectively exposed and annual internal audit plans are based on this analysis. Our review of effectiveness of the system of internal control is informed by the work of the internal auditors and the senior managers within the SPCB and the Scottish Government who have responsibility for the development and maintenance of the internal control framework. We are also informed by our external auditors, Audit Scotland, on matters of internal control through their management letter and reports. In addition, Internal Audit carried out detailed work on a review of the governance arrangements for the MSP Pension Fund which was reported in January Some of the actions to the recommendations are encompassed in the new legislation which has been the SPCB s first priority in terms of addressing recommendations. Any remaining agreed recommendations will now be addressed. Although many elements of the internal control environment remain constant, appropriate interim arrangements were established for the transition to the new scheme. More information on the main changes to the Scheme Rules from 1 September 2009 is contained in paragraph 19 of the Managers Report. The SPCB s Advisory Audit Board (AAB) met 4 times in the year ended 31 March In , membership of the AAB remained at four independent external members, one of which has the role of Chair and two members of the Corporate Body. The AAB receives reports from both external and internal auditors and provides guidance to the Principal Accountable Officer, Presiding Officer and the SPCB on corporate governance issues. Approved on behalf of the Scottish Parliamentary Corporate Body as Managers of the Scottish Parliamentary Contributory Pension Fund. ALEX FERGUSSON MSP Date: 29 October 2009 Presiding Officer Page 12

15 Independent Auditor s Report To the Managers of the Scottish Parliamentary Contributory Pension Fund, the Scottish Parliament and the Auditor General for Scotland I have audited the financial statements of the Scottish Parliamentary Contributory Pension Fund (the Fund ) for the year ended 31 March 2009 under the Public Finance and Accountability (Scotland) Act 2000 and the Scotland Act 1998 (Transitory and Transitional Provisions)(Scottish Parliamentary Pension Scheme) Order 1999 and the directions made thereunder. These comprise the Fund Account, Net Assets Statement and related notes. These financial statements have been prepared in accordance with the accounting policies set out within them. This report is made solely to the parties to whom it is addressed in accordance with the Public Finance and Accountability (Scotland) Act 2000 and for no other purpose. In accordance with paragraph 123 of the Code of Audit Practice approved by the Auditor General, I do not undertake to have responsibilities to members, in their individual capacities, or to third parties. Respective responsibilities of the Managers and Auditor The Managers are responsible for the preparation of the financial statements in accordance with the Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order 1999 and directions made thereunder by the Auditor General for Scotland. The Managers are also responsible for ensuring the regularity of expenditure and receipts. These responsibilities are set out in the Statement of Managers Responsibilities. My responsibility is to audit the financial statements in accordance with the relevant legal and regulatory requirements and with International Standards on Auditing (UK and Ireland) as required by the Code of Audit Practice approved by the Auditor General for Scotland. I report my opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Public Finance and Accountability (Scotland) Act 2000 and the Scotland Act 1998 (Transitory and Transitional Provisions)(Scottish Parliamentary Pension Scheme) Order 1999 and the directions made thereunder. I also report whether in all material respects: the expenditure and receipts shown in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers; and the contributions payable to the Fund have in all material respects been paid in accordance with the Fund rules and the recommendation of the Actuary. I also report if, in my opinion, I have not received all the information and explanations I require for my audit, or if the information specified by law is not disclosed. I review whether the Statement on Internal Control reflects the Fund s compliance with guidance issued on behalf of Scottish Ministers. I report if, in my opinion, it does not. I am not required to consider whether this statement covers all risks and controls or form an opinion on the effectiveness of the Fund s corporate governance procedures or its risk and control procedures. I read the other information published with the financial statements and consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises the Managers Report and the Report of the Actuary. Page 13

16 Basis of audit opinion I conducted my audit in accordance with the Public Finance and Accountability (Scotland) Act 2000 and International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board as required by the Code of Audit Practice. My audit includes examination, on a test basis, of evidence relevant to the amounts, disclosures and regularity of expenditure and receipts included in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Managers in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Fund s circumstances, consistently applied and adequately disclosed. I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error, and that, in all material respects, the expenditure and receipts shown in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers. In forming my opinion I also evaluated the overall adequacy of the presentation of information in the financial statements. Opinions Financial statements In my opinion: the financial statements give a true and fair view of the financial transactions of the Fund during the year ended 31 March 2009 and of the disposition at that date of its assets and liabilities, other than liabilities to pay benefits after the end of the Fund year; and the financial statements have been properly prepared in accordance with the Public Finance and Accountability (Scotland) Act 2000 and the Scotland Act 1998 (Transitory and Transitional Provisions)(Scottish Parliamentary Pension Scheme) Order 1999 and the directions made thereunder. Regularity In my opinion in all material respects: the expenditure and receipts shown in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers; and the Contributions payable to the Fund during the year ended 31 March 2009 have been paid at least in accordance with the Fund rules and the recommendation of the Actuary. Murdoch McCamley Senior Audit Manager Audit Scotland Osborne House 1/5 Osborne Terrace Edinburgh EH12 5HG Date 30 October 2009 Page 14

17 Fund Account for the year to 31 March 2009 Note Contributions and Benefits Contributions received 4 2,102 1,983 Transfers in from other schemes Other Income ,317 2,050 Benefits payable 7 (323) (224) Other payments 8 (48) (53) Administration expenses 9 (72) (55) Transfer out to other schemes 5 (35) (403) (478) (735) Net income from dealings with members 1,839 1,315 Returns on Investments Change in market value of investments Managed funds 10 (4,252) (207) Additional voluntary contributions 14 (22) 17 Net return on investments (4,274) (190) Net increase in the fund during the year (2,435) 1,125 Net Assets of the SPCPF At 1 April , At 31 March ,510 19,945 The notes on pages 17 to 22 form part of these accounts Page 15

18 Net Assets Statement as at 31 March 2009 Note Investments at market value Managed funds 13 17,127 19,495 AVC ,386 19,765 Current assets and liabilities Debtors Creditors 12 (46) (28) Net current assets Net Assets of the Fund 17,510 19,945 The financial statements summarise the transactions of the SPCPF and deal with the net assets at the disposal of the Managers. They do not take account of obligations to pay pensions and benefits which fall due after the end of the scheme year. The actuarial position of the SPCPF, which does take account of such obligations, is dealt with in the Government Actuary s report on the position of the SPCPF as at 31 March 2009 and these financial statements should be read in conjunction with that report. Approved on behalf of the Scottish Parliamentary Corporate Body as Managers of the Scottish Parliamentary Contributory Pension Fund. ALEX FERGUSSON MSP Date: 29 October 2009 Presiding Officer The notes on pages 17 to 22 form part of these accounts Page 16

19 Notes to the Financial Statements Accounts for the year ended 31 March Basis of preparation The financial statements have been prepared in accordance with an accounts direction given by the Auditor General for Scotland, the relevant recommendations of the Statement of Recommended Practice (SORP) Financial Reports of Pension schemes, and the governing scheme legislation, The Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order Prior year adjustments The Trustees have adopted the revised SORP. As a result investments previously valued at mid prices are now valued at bid or offer prices for assets and liabilities respectively where there is a bid/offer spread. This is a change in accounting policy but the difference in valuation is considered to be immaterial to the financial statements and therefore comparatives have not been restated. As a result the comparative figures for investments are reported on a mid price basis and the adjustment in valuation from mid to bid/offer prices is included in current year Changes in Market Value of Investments. 3. Accounting policies The principal accounting policies are: a) Pension contributions from the Scottish Consolidated Fund and members are accounted for on an accruals basis. b) Benefits are accounted for on the date they fall due. c) Transfer values from or to other pension arrangements are accounted for on a cash basis. d) Refunds of contributions are accounted for on an accruals basis. e) All other expenditure is accounted for in the period to which it relates. f) Baillie Gifford investments are priced on a single swinging price basis which is SORP compliant. Other unit investments are priced on a bid price or appropriate SORP compliant basis. Page 17

20 4. Contributions Receivable Fund contributions are based on members salaries Employers Scottish Consolidated Fund contributions 1,608 1,516 Members Members of the Scottish Parliament Additional Voluntary Contributions Total contributions Income 2,102 1, Transfer Values Transfer values in Transfer value out Other Income Interest is earned on funds held in the designated bank account awaiting transfer to the Investment Manager Bank interest Reimbursement of death in Service payment Benefits Payable The Fund has twenty two current beneficiaries. Benefits payable to beneficiaries were as follows Pensions Death in Service payment AVC pensions (note 14) Page 18

21 8. Other Payments A Death in Service Insurance Policy is maintained Insurance premium Administrative Expenses Fees are payable to the Government Actuary and Audit Scotland Audit fees Actuarial fees The cost of administering the SPCPF was borne jointly by the Scottish Parliamentary Corporate Body, SPCPF and the SPPA. The SPCPF is not recharged with administrative costs incurred on its behalf by the SPPA or SPCB. Baillie Gifford s charge for investment management and cost associated with the Fund is 0.53% per annum of the value of the Fund accrued on a daily basis. The estimated management charge for the year is 90,771 (see note 10). Baillie Gifford s charge in was 0.59% of the fund which amounted to 115, Changes in Market Value of Investments Investments from income accrued are made at approximately monthly intervals Opening balance at 1 April 19,495 18,399 Add investments 1,884 1,303 21,379 19,702 Closing balance at 31 March 17,127 19,495 Increase/(Decrease) in Market value (4,252) (207) The decrease in investment of 4,251,914 includes the management charge and costs associated with the fund of 90,771 ( : 115,022). 11. Debtors Contributions due to the SPCPF Insurance Page 19

22 12. Creditors Pension Due Audit Fee Government Actuary Insurance Investments The following table summarises the holdings in the Baillie Gifford Managed Pension Fund as at 31 March Fuller details of the holdings are available in the Fund s quarterly Report % 000 % Equities 13, , UK 4, , North America 2, , Europe 2, , Asia 1, , Other Overseas Emerging 1, , Fixed Interest Bonds 2, , UK 8.43% Overseas bonds and index linked 5.83% Cash and Deposits , Total Fund 17, , Any investment income received on the Funds investments and any tax recoveries are reinvested in the pooled fund. The 1,883,347 invested this year has been used to purchase additional units in the Baillie Gifford Managed Pension Fund. Page 20

23 14. Additional Voluntary Contributions The Scottish Parliamentary Pension Scheme provides for members to make additional voluntary contributions (AVCs) to supplement their pension entitlements or insurance cover. Members may arrange to have agreed sums deducted from their salaries for onward payment to one of the two approved providers, Equitable Life Assurance Society or Scottish Widows. The aggregate movements and amounts of AVC investments are as follows: AVC investments as at 1 April Contributions Retirements from scheme Gains on AVC investments 0 (22) AVC investments at 31 March Market value of AVC investments by provider Equitable Life Scottish Widows Contingent liability (43) In the unlikely event of default by either of the approved providers, the Scottish Parliamentary Corporate Body will meet such contingent liability as may arise, if any, in terms of the Scotland Act 1998 (Transitory and Transitional Provisions)(Scotland Parliamentary Pension Scheme) Order 1999 No This guarantee does not apply to members who use their accumulated AVC investment to purchase pension provision from a non-approved provider nor to members who have invested in a Free Standing AVC. 16. Related party transactions None of the members of the Scottish Parliamentary Corporate Body has undertaken anything other than normal pension contribution transactions and will receive no enhanced benefits other than the usual scheme benefits. The SPCB and SPPA provide administration services and under a Service Level Agreement introduced in between the SPCB and SPPA for provision of these services the SPCB incurred a fee of 7,785. Neither key management staff nor any other related party has undertaken any material transactions with the SPCPF during the year. 17. The Scottish Parliamentary Pension Scheme The Scottish Parliamentary Pension Scheme is a funded defined benefit scheme. A full actuarial valuation was carried out as at 31 March The next full actuarial valuation is due as at 31 March The Report of the Actuary updating this to 31 March 2009 is set out on pages 6 to 9. The major assumptions used by the Government Actuary were: At 31 March 2009 At 31 March 2008 Gross rate of Investment Return 6.9% 6.9% Real Rate of Return, net of Earnings increases 2.3% 1.6% Page 21

24 Pension benefits under the scheme are increased in line with inflation. In accordance with the FRAB, the scheme liability has been discounted at a real rate of 3.8%. The present value of the scheme liabilities at 31 March 2009 is 21.2 million. During the year ended 31 March 2009, members and employers contributions were 6% and 20.3% of pensionable pay respectively. The 2005 Actuarial valuation recommended that Employer s contributions should be set at 20.3% from April This recommendation was approved by the Managers on 26 September 2006 and was backdated to 1 April The actual contribution rate paid by the employer of 20.3% includes 0.5% to cover the expense of running the Scheme and is lower than the cost of the accruing benefits shown in the Report of the Actuary. This is because the employer s contributions are based on the accruing cost assessed by reference to the long term view of real investment yields, whereas the accruing annual cost disclosed for accounts purposes is based on current market yields. At present, the current market yield is lower than the expected long term yield, which results in a higher contribution rate being in the Scheme s accounts. The employers contribution rate is 21.0% from 1 April 2009 as result of the triennial valuation review as at 31 March Movement in scheme liability during the year m m Liability as per Valuation at 1 April Interest rate cost Current Service cost increase Benefits paid (0.1) (0.2) Net transfers (out)/in 0.5 (0.3) Experience (Gain)/ Loss (3.5) (5.8) Liability as at 31 March Page 22

25 SCOTTISH PARLIAMENTARY CONTRIBUTORY PENSION FUND ACCOUNTS DIRECTION GIVEN BY THE AUDITOR GENERAL FOR SCOTLAND IN ACCORDANCE WITH PARAGRAPH 4 OF SCHEDULE 1 TO THE SCOTLAND ACT 1998 (TRANSITORY AND TRANSITIONAL PROVISIONS) (SCOTLAND PARLIAMENTARY PENSION SCHEME) ORDER The Scottish Parliamentary Corporate Body shall prepare the Scottish Parliamentary Contributory Pension Fund (SPCPF) financial statements for the year ended 31 March 2009 and each subsequent financial year, comprising: a Foreword; a Fund account; and a Net Assets statement (including such notes as may be necessary for the purposes referred to in the following paragraphs). 2. The accounts shall give a true and fair view of the financial transactions of the Fund during the year and of the disposition at the year-end of its assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Fund year. 3. The Foreword shall consist of information concerning the Scottish Parliamentary Contributory Pension Fund and should inter alia: provide summary details of and a reference to the Scottish Parliamentary Corporate Body s report, the investment report, the actuarial report (to be prepared at least every 3 years), and the compliance statement. These reports shall be prepared in accordance with the requirements of the Statement of Recommended Practice - Financial Reports of Pension Schemes issued by the Pension Research Accountants Group in 2007; state that the financial statements have been prepared in accordance with directions given by the Auditor General for Scotland in pursuance of paragraph 4 of Schedule 1 to the Scotland Act (Transitory and Transitional Provision) (Scotland Parliamentary Pension Scheme) Order 1999; and include an explanation of the statutory background to the financial statements. 4. The Foreword will be accompanied by a statement of the Scottish Parliamentary Corporate Body s responsibilities, which together with the Foreword and Accounts will be published not later than nine months after the end of the financial year to which the account relates. 5. Subject to these requirements, the financial statements shall be prepared in accordance with: the Statement of Recommended Practice (SORP), Financial Reports of Pension Schemes, issued in 2007 in so far as this is appropriate to the circumstances of the Fund; Page 23

26 generally accepted accounting practice in the United Kingdom (UK GAAP) where relevant to the Fund s circumstances; and the 1995 Pensions Act, in so far as this is required for the Fund. 6. The financial statements, prepared in accordance with this Direction must be sent for audit to the Auditor General for Scotland not later than 6 months after the end of the financial year to which the account relates. 7. This Accounts Direction supersedes that issued on 5 May Auditor General for Scotland 4 August 2009 Page 24