Scottish Parliamentary Contributory Pension Fund. HMRC Approval Number RY. Annual Accounts

Transcription

1 Scottish Parliamentary Contributory Pension Fund HMRC Approval Number RY Annual Accounts SG/2011/190

2 Contents Page Trustees Report for the year ended 31 March 2011 to the members of the Scottish Parliamentary Contributory Pension Fund 1 Investment Manager s Report 5 Report of the Actuary 8 Statement of Trustees Responsibilities 11 Summary of Contributions paid in year 12 Independent Auditor s statement about contributions 13 Statement on Internal Control 14 Independent Auditor s Report 16 Fund Account 18 Net Assets Statement 19 Notes to the Accounts 20 Compliance Statement 25

3 Trustees Report Background The Scottish Parliamentary Contributory Pension Fund (SPCPF) was set up on 6 May 1999 under transitional provisions of the Scotland Act The original legislation that governed the SPCPF was The Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order 1999 (S.I No.1082) ( the 1999 Order ). However, 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 1999 Order was subsequently replaced by The Scottish Parliamentary Pensions Act 2009 ( the 2009 Act ) with the new scheme rules coming into force from 1 September The SPPS covers the scheme rules and the SPCPF refers to the fund. More information on the changes to the scheme rules is contained in the Compliance Statement on pages of this report 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. Aim of the Report It is the intention of the Fund Trustees to disclose relevant information, including actuarial and accounting details, to all members of the scheme. Therefore, in accordance with Schedule 1, Rule 104 of the 2009 Act, the Fund Trustees will arrange for the audit of the annual accounts and lay a copy of the audited accounts and audit report before the Parliament within 7 months of the end of the accounting year. Management of Fund The Scottish Parliamentary Corporate Body (SPCB) managed the SPCPF from 6 May 1999 to 31 August Under section 1(2) of the 2009 Act all the SPCB s functions, rights, liabilities and obligations in relation to the SPCPF were transferred to and vested in the Fund Trustees from 1 September Following the introduction of the 2009 Act the SPCB transferred its responsibilities for the SPCPF to the Fund Trustees from 1 September The 4 Fund Trustees elected by the Parliament on 17 June 2009 were: Name Elected Alasdair Morgan MSP (chair) 17 June 2009 Bill Aitken MSP 17 June 2009 David Stewart MSP 17 June 2009 Ross Finnie MSP 17 June 2009 Page 1

4 After the election on 5 May 2011 there were changes in the Fund Trustees. At the date of approval of the annual report, the Trustees were: Name Elected Alasdair Morgan (chair) 17 June 2009 Bill Aitken 17 June 2009 David Stewart MSP 17 June 2009 Scheme Administration The day to day running of the Scheme is carried out by the Secretariat to the Fund Trustees within the Scottish Parliament s Human Resources Office. Any queries about pensions or any further information required should be sent to the Secretariat at the following address: Scottish Parliamentary Pension Scheme Secretariat to the Trustees The Scottish Parliament Human Resources Office Edinburgh EH99 1SP Telephone (Direct Dial): Fax: derek.stein@scottish.parliament.uk The Scottish Public Pensions Agency provides a pension administration service for scheme members on behalf of the Fund Trustees. Income Income of the SPCPF is derived from two main sources (a) contributions from participating scheme members and (b) contributions from the Scottish Consolidated Fund in respect of the SPCB s contribution as the scheme sponsor. Members and office-holders contribute 11% of their salaries if they accrue benefits on a fortieths basis or 6% of their salaries if they accrue benefits on a fiftieths basis. The SPCB contributes 21% of a participating member s and office-holder s pensionable salary. The 6% contribution rate for the fiftieths accrual rate came into effect from 6 May 1999 whilst the 11% contribution rate was introduced along with the fortieths accrual rate from 1 September The SPCB s contribution rate of 21% came into effect from 1 April 2009 following the third triennial valuation as at 31 March Actuarial Valuation The Scheme 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 Page 2

5 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 Scheme Actuary, at that review, recommended an increase to the contribution rate from 20.3% of salary to 21.0% from 1 April A Report of the Actuary for the period 1 April 2010 to 31 March 2011 can be found at pages 8 to 10 of this report. A further triennial valuation of the position as at 31 March 2011 is being carried out. Scheme Membership As at 31 March 2011 membership of the scheme consisted of 128 active MSP scheme members plus the Lord Advocate and Solicitor General for Scotland. Of the 128 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 42 deferred pensioners (former pension scheme members who were not yet in receipt of a pension) and 24 pensions in payment at the year end. Movement in the membership of the scheme during the year included 2 deferred members moving to become pensioner members and the death of 1 pensioner member. Preparation of annual accounts The SPPSF 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 Trustees responsibilities with regard to the preparation of the accounts is on page 11. This includes a comment that the financial statements have been prepared on a going concern basis. The audited accounts are expected to be laid before the Parliament within 7 months of the end of the accounting year. Copies of these accounts are available from the Secretariat on request. Summary Financial Information Income during the period was 2,793,000 ( ,653,000), and the Fund expenditure 247,000 ( ,000). The net assets of the Fund at 31 March 2011 were 34,833,000 ( ,754,000). During the period a total of 2,560,000 ( ,289,000) was remitted to the Fund Managers for investment in Baillie Gifford Managed Pension Fund. No other investments or cash sums were held. Investment details and performance 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 Page 3

6 exempt from this requirement a Statement of Investment Principles has been produced for the Scheme through a desire to comply with best practice for funded schemes. A copy of this is available from the Secretariat on request. 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 Fund s assets is 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. Investment Manager The Trustees have appointed Baillie Gifford, a UK registered Fund Manager, as Fund Manager for the SPCPF and the Trustees have delegated the responsibility for day to day investment management to them. Investments are made through the Baillie Gifford Managed Pension Fund. The main feature of the policy is that the benefits obtained are entirely dependent on the investment performance of the assets of the Fund. Baillie Gifford is paid an investment management fee excluding charges based on a percentage (0.45% for the Managed Pension Fund) of the total market value of the Fund per annum, which is deducted from the value of the Fund each month. All the assets within the unit linked funds that Baillie Gifford operate are owned by Baillie Gifford and are registered in the name of Baillie Gifford. The Scheme does not have a custodian as it invests in units in a pooled fund which does not require a custodian. The custodian for Baillie Gifford Managed Pension Fund is as follows: Bank of New York One Canada Square LONDON E14 5AL Investing in the Baillie Gifford Managed Pension Fund began on 4 August In the period from 1 April 2010 to 31 March ,560,294 was invested. This compares with 2,289,597 invested in the period from 1 April 2009 to 31 March At 31 March 2011 the market value of the units held within the Fund was 34,355,078 ( 28,273,673 on 31 March 2010). 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, 3.43 at 31 March 2009, 5.11 at 31 March 2010 and 5.71 at 31 March Alasdair Morgan Chair of Pension Trustees (On behalf of the Trustees) Date: 13 September 2011 Page 4

7 Investment Report for the Year Ended 31 March 2011 The Trustees have prepared a Statement of Investment Principles which sets out their policies on investment and their strategy for achieving them, a copy of which is available on request. Day to day responsibility for the management of investments has been delegated to Baillie Gifford & Co, who operate in accordance with guidelines and restrictions set out in the Life Policy Agreement and with instructions given by the Trustees from time to time. Investment Target The Trustees have set a performance objective for the investment managers which takes account of the liability profile of the Fund and the level of risk that the Trustees believe appropriate. The present target of the Baillie Gifford Managed Pension is to outperform the CAPS median Balanced Pooled Fund by % p.a. gross over rolling 3 year periods. Distribution of Assets Based on a report from Baillie Gifford, the distribution of assets in the Fund at 31 March 2011 was as follows: % % UK Equities Overseas Equities North America Europe Developed Asia Pacific Emerging Markets Fixed Interest UK Bonds Overseas Bonds Cash and Deposits TOTAL Economic and Market Background 12 Months to 31 March 2011 Despite nervousness among investors over the strength of the global recovery, the impact of a devastating earthquake and tsunami in Japan, and ongoing unrest in North Africa and the Middle East, there was also much encouraging economic news over the period, and stock markets around the world delivered positive returns. Many of the perceived economic threats failed to materialise. China avoided the hard landing predicted by many observers, while, neither the UK nor the US was hit by the feared double-dip recession although inflationary pressures continued to grow. Eurozone Page 5

8 countries had mixed fortunes, with the economic woes of Greece, Ireland, Spain and Portugal in sharp contrast to the strength of Germany which, during the final three months of 2010, recorded its best quarterly economic performance since reunification two decades earlier. Although emerging market economies continued to perform well, foreign investors became more cautious on prospects there and some began to withdraw funds from China, Brazil and India which had seen heavy investment for much of the period. However, despite these concerns, investment returns in these areas remained positive. Over the 12 months to the end of March, the UK equity market rose 9% and overseas markets also performed well. Europe gained 7% for UK-based investors, while the US posted a 10% rise in sterling terms. Meanwhile, Developed Asia (including Japan) ended the period 5% higher and the strength of Emerging Markets was reflected in a return of 12%. Bond markets benefited at various points from moves into the asset class by some investors amid increasing concerns over economic uncertainty and confirmation that fears of record corporate bond defaults had now subsided. In January, there was a successful issue of the first European Financial Stability Facility bond. It is guaranteed by various European states and is a vehicle for raising money to provide loans to troubled Eurozone countries. However, some government bond markets fell as investors became increasingly convinced of the global economic recovery and raised their exposure to equities. Against this backdrop, UK gilts rose 5% over the period and UK corporate bonds posted a rise of 5%, while overseas government bonds were up 2% in local currency terms. Although monetary conditions remain loose around the world, pressure is growing for interest rates to rise in some developed economies. Meanwhile, the general economic uncertainty in the Eurozone also threatens to linger and this is likely to create further volatility for investors. At a portfolio level, we remain focused on the bottom-up analysis of companies to ensure as far as possible that the businesses in which we invest have good prospects for earnings growth over the longer term. We are finding attractive investment opportunities in companies that are either based in emerging markets or benefiting from the growth taking place there. We also hold positions in several companies which we believe have an excellent long-term outlook but have not participated fully in the equity market rally and are now, on a relative basis, looking attractive. Meanwhile, in fixed interest markets, we continue to favour corporate bonds over government bonds. Performance (Net of Fees) The Managed Pension Fund provided a total net return of 11.6% during the year ended 31 March 2011 compared to a CAPS median Balanced Pooled Fund return of 7.4%. The annualised investment return over the last three years to 31 March 2011 of 9.7% compares to a CAPS median Balanced Pooled Fund return of 6.0% per annum. The returns for the five years are 6.3% and 4.2% respectively. Page 6

9 Largest Holdings As of 31 March 2011 the ten largest holdings, which accounted for 28.5% of the total value of the portfolio, were: Baillie Gifford EM Growth Fund Baillie Gifford British Smaller Companies Fund % of Portfolio Baillie Gifford EM Bond 2.2 Baillie Gifford Global Bond 1.8 Atlas Copco 1.8 Svenska Handelsbanken 1.8 GBL 1.7 Nestle R 1.7 BG Group 1.6 Total 1.5 Rio Tinto 1.5 EM = Emerging Markets Marketability Investments comprise units in a collective investment vehicle managed by Baillie Gifford, the holdings of which are regarded as being readily marketable. Page 7

10 Scottish Parliamentary Pension Scheme (SPPS) - Report of the Actuary Accounting Year ended 31 March Data 1.1 At the end of the accounting year 31 March 2011, there were 128 Members of the Scottish Parliament (MSPs) accruing benefits under the SPPS and 2 Law Officers. Pensionable payroll for the financial year 2010/2011 was approximately 8.0 million. There were 24 pensions in payment (including two dependants) and 42 deferred members as at 31 March Pensions paid during the financial year 2010/11 totalled 166, Liabilities 2.1 The capitalised value as at 31 March 2011 of expected future benefit payments under the Scottish Parliamentary Pension Scheme, for benefits accrued in respect of employment prior to 31 March 2011, 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 2011 is a net discount rate in excess of price increases of 2.6%. The total liability as at 31 March 2011 is 37.7 million. 2.2 Liability Movement Liabilities of SPCPF at 31 March Current service cost (net of employee contributions) 2.4 Employee contributions 0.9 Past service costs (4.7) Interest on pension liabilities 2.1 Net transfers-in, less benefits paid out 0.1 Actuarial loss (gain) (1.5) 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 2011): million % Experience loss (gain) arising (0.9) (2.4%) Effect of change in assumptions (0.6) (1.6%) Actuarial loss (gain) (1.5) (4.0%) Page 8

11 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 for members on the 1/50 th accrual rate and 11% of pay for members on the 1/40 th accrual rate), with the Scottish Parliamentary Corporate Body meeting the balance of the cost of the benefits. The total cost of benefits accruing in the year 2010/2011 has been assessed using the methodology and assumptions set out in Sections 4 and 5 below. 3.2 The key discount rate used for determining the accruing cost in 2010/2011 is a net discount rate in excess of price increases. At 31 March 2010, the discount rate adopted in excess of the Retail Price Index (RPI) was 1.8% pa. Following the Budget on 22 June 2010, pension benefits from the scheme are now indexed in line with increases in the Consumer Prices Index (CPI). As at 31 March 2010, the discount rate in excess of CPI increases was 2.6% pa. The former rate is used to determine the accruing cost up to 22 June 2010, and the latter rate is used to determine the accruing cost thereafter. The results are as follows: Accruing cost for 2010/2011 % of Pensionable Pay Standard Contribution Rate 41.7% (excluding expenses) Members Contribution Rate (the average rate 10.7% paid during the year) Sponsor s share of standard cost 31.0% Allowance for expenses 1.0% Total Sponsor s cost for accruing benefits 32.0% 3.3 The actual contribution rate paid by the employer, 21% of pensionable salary, including 1% to cover the expense of running the Scheme and 0.2% 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 31 March 2010 (the date on which yields were used to set the assumptions for the accruing cost in 2010/11), the market yield (at 1.8% net of RPI increases and 2.6% net of CPI increases) was lower than the expected long term real yield (at 3.5%), which results in a higher contribution rate being disclosed in the Scheme s accounts for this year. 3.4 In relation to the pensionable payroll for the financial year, the actual charges in cash terms borne by the Scottish Parliamentary Corporate Body (Consolidated Fund) were 1.7 million for the financial year 2010/2011. Page 9

12 4. Methodology 4.1 The value of the liabilities as at 31 March 2011 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 2011 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 yields on AA corporate bonds as at the end of the accounting year. 5.2 At 31 March 2010, the discount rate in excess of price increases was assessed as 1.8% p.a net of RPI increases. The discount rate for pension liabilities is 2.6% net of CPI increases with effect from 31 March 2011, which results in the value of the liabilities as at 31 March 2011 being lower than as at 31 March The main financial assumption used for assessing the cost of pensions accruing over the year 2010/11 is the discount rate applicable at the start of the year, ie 1.8% net of RPI increases and 2.6% net of CPI increases. 5.4 The demographic assumptions adopted for the assessments are based on those used in the full actuarial valuation of the scheme as at 31 March The mortality assumptions used in that valuation have been updated to take account of the 2008-based UK population projections published by the Office for National Statistics. 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. Ken Kneller Fellow of the Institute and Faculty of Actuaries Government Actuary's Department 30 June 2011 Page 10

13 Statement of Trustees Responsibilities The financial statements, which are prepared in accordance with UK Generally Accepted Accounting Practice, are the responsibility of the Trustees. Pension scheme regulations require the Trustees to make available to scheme members, beneficiaries and certain other parties, audited financial statements for each scheme year which: Show a true and fair view of the financial transactions of the scheme during the scheme year and of the amount and disposition at the end of that year of the assets and liabilities, other than liabilities to pay pensions and benefits after the end of the scheme year, and Contain the information specified in the Schedule to the Operational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice Financial Reports of Pension Schemes. The Trustees have supervised the preparation of the financial statements and have agreed suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis. The Trustees are responsible for ensuring compliance with the scheme rules. In respect of contributions payable towards the Fund from the Scottish Consolidate Fund and the active members of the scheme the Fund Trustees must have regard to the rates recommended by the scheme actuary and the dates on or before which such contributions are to be paid. The Trustees are also responsible for keeping records of contributions received in respect of any active member of the scheme and for monitoring whether contributions are made to the fund by the sponsor in accordance with the schedule of contributions. Where breaches of the schedule occur, the Trustees are required by the Pensions Acts 1995 and 2004 to consider making reports to the Pensions Regulator and the members The Trustees also have responsibility for ensuring that adequate accounting records are kept and for taking steps as are reasonably open to them to safeguard the assets of the fund and to prevent and detect fraud and other irregularities, including the maintenance of appropriate internal controls. Page 11

14 Summary of Contributions paid in year During the year the contributions paid to the Fund by the sponsor under the schedule of contributions were as follows: Sponsor normal contributions 1,691 1,668 Active member normal contributions Active member additional contributions to purchase 10 8 Added Years Total Contributions 2,547 2,334 Alasdair Morgan Chair of Pension Trustees (On behalf of the Trustees) Date: 13 September 2011 Reconciliation between contributions paid shown above and contributions reported in the annual accounts: Contributions paid: 2,547 2,334 Less opening debtor (210) (170) Add closing debtor Contributions reported in the annual accounts 2,542 2,374 Additional contributions amounting to 13,000 ( ,000) were paid by active members direct to the two approved providers of Additional Voluntary Contribution schemes. Page 12

15 INDEPENDENT AUDITOR'S STATEMENT ABOUT CONTRIBUTIONS TO THE TRUSTEES OF SCOTTISH PARLIAMENTARY CONTRIBUTORY PENSION FUND We have examined the summary of contributions to Scottish Parliamentary Contributory Pension Fund for the scheme year ended 31 March 2011 which is set out in the trustees' report. This statement is made solely to the scheme's trustees, as a body, in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations Our work has been undertaken so that we might state to the trustees those matters we are required to state to them in an auditor's statement about contributions under the scheme and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the trustees, for our work, for this statement, or for the opinions we have formed. Respective responsibilities of trustees and auditor As described in the trustees responsibilities statement, the scheme s trustees are responsible for ensuring that there is prepared, maintained and from time to time revised a schedule of contributions showing the rates and due dates of certain contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme. The trustees are also responsible for keeping records in respect of contributions received in respect of active members of the scheme and for monitoring whether contributions are made to the scheme by the employer in accordance with the Scottish Parliamentary Pensions Act It is our responsibility to provide a statement about contributions paid under the Scottish Parliamentary Pensions Act 2009 and to report our opinion to you. Scope of work on statement about contributions Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported in the summary of contributions have in all material respects been paid at least in accordance with the Scottish Parliamentary Pensions Act This includes an examination, on a test basis, of evidence relevant to the amounts of contributions payable to the scheme and the timing of those payments under the Scottish Parliamentary Pensions Act Statement about contributions In our opinion contributions for the scheme year ended 31 March 2011 as reported in the summary of contributions have in all material respects been paid at least in accordance with the Scottish Parliamentary Pensions Act 2009 certified by the scheme actuary on 30 June PKF (UK) LLP Statutory auditor Edinburgh, UK Page September 2011

16 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 acknowledge our responsibility as Trustees for ensuring that a sound and effective system of internal control is maintained and operated that supports the achievement of the Fund s objective whilst safeguarding the Fund s assets. Officials from the Scottish Parliamentary Corporate Body (SPCB) and the Scottish Public Pensions Agency (SPPA) provide a full secretariat and administrative service to the Trustees. The Purpose of the System of Internal Control The system of internal control is designed to manage rather than eliminate the risk of failure to achieve the Fund s policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify the principal risks to the achievement of the Fund s policies, aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. It is based on a framework of regular management information including independent advice from the Fund s professional advisors, appropriate administrative procedures, segregation of duties and a system of delegation and accountability. Administration Day to day administration and accounting responsibility has been delegated to the SPCB and the Trustees rely on their internal control procedures which form part of the system of internal control operated by the SPCB. Appointed officials of the SPCB make payment of all awards. Reliance is also placed on the system of internal control operated at the SPPA. The approval of pension awards for routine retirement (i.e. due to age or nonreturn to the Parliament) is delegated to the SPPA. The Trustees only approve pension awards in other circumstances (e.g. ill health). Risk and Control Framework With the Trustees taking up responsibilities from September 2009, reliance is placed on existing SPCB controls. During a risk register specific to the SPCPF was developed. Controls operational during included: All funds are controlled by the appointed officials of the SPCB through a designated Royal Bank of Scotland account; Regular reconciliations are conducted by the appointed officials of the SPCB of the designated Royal Bank of Scotland account; 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; Page 14

17 The Trustees delegated responsibility for the investment management of the SPCPF entirely to Baillie Gifford. Quarterly reports were received from Baillie Gifford. This include a Fund Manager s report; details of investment performance; a list of current holdings; and accounting and corporate governance information; 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 Trustees have access to all documents and records. Internal Control 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 internal audit plans are based on this analysis. The Trustees development and maintenance of the internal controls is assisted by the relevant Internal Audit comment and by the work of the external auditor. Comments made by the external auditor in their management letter and other reports are taken into account. Alasdair Morgan Chair of Pension Trustees (On behalf of the Trustees) Date: 13 September 2011 Page 15

18 INDEPENDENT AUDITOR'S REPORT TO THE TRUSTEES OF SCOTTISH PARLIAMENTARY CONTRIBUTORY PENSION FUND We have audited the financial statements of Scottish Parliamentary Contributory Pension Fund for the year ended 31 March 2011 which 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 United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the scheme s trustees, as a body, in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations Our audit work has been undertaken so that we might state to the scheme s trustees 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 scheme and the scheme s trustees, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of trustees and auditor As explained more fully in the trustees responsibilities statement, the scheme's trustees are responsible for the preparation of financial statements which show 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 scheme's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in annual accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: show a true and fair view of the financial transactions of the scheme during the year ended 31 March 2011, and of the amount and disposition at that date of its assets and liabilities, other than the liabilities to pay pensions and benefits after the end of the year; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and Page 16

19 contain the information specified in Regulation 3 of, and the Schedule to, the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act September 2011 PKF (UK) LLP Statutory auditor Edinburgh, UK Page 17

20 Fund Account for the year to 31 March 2011 Note Contributions and Benefits Contributions received 3 2,555 2,386 Transfers in from other schemes ,793 2,653 Benefits payable 5 (186) (192) Other payments 6 (3) (69) Administration expenses 7 (58) (43) Transfers out to other schemes 4 (0) (0) (247) (304) Net income from dealings with members 2,546 2,349 Returns on Investments Change in market value of investments Managed funds 8 3,521 8,858 Additional voluntary contributions Net return on investments 3,533 8,895 Net increase in the Fund during the year 6,079 11,244 Net assets of the SPCPF At 1 April ,754 17,510 At 31 March ,833 28,754 The notes on pages 20 to 24 form part of these accounts Page 18

21 Net Assets Statement as at 31 March 2011 Note Investments at market value Managed funds 11 34,355 28,274 AVC ,675 28,582 Current assets and liabilities Current assets Current liabilities 10 (47) (38) Net current assets Net Assets of the Fund 34,833 28,754 The accounts summarise the transactions of the SPCPF and deal with the net assets at the disposal of the Trustees. 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 2011 and these accounts should be read in conjunction with that report. Approved and authorised for issue on behalf of the Trustees: Alasdair Morgan Chair of Pension Trustees (On behalf of the Trustees) Date: 13 September 2011 The notes on pages 20 to 24 form part of these accounts Page 19

22 Notes to the Accounts Accounts for the year ended 31 March Basis of preparation The financial statements have been prepared in accordance with The Statement of Recommended Practice (SORP) on Financial Reports of Pension Scheme Accounts, revised in May The accounts summarise the transactions and net assets of the scheme. They do not take account of liabilities to pay pensions and other benefits in the future. The actuarial report does take these liabilities into account (an actuarial statement can be found at pages 8-10). 2. 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. 3. Contributions receivable Fund contributions are based on members salaries Sponsors Scottish Consolidated Fund contributions 1,688 1,677 Members Members of the Scottish Parliament Additional Voluntary Contributions Total contribution income 2,555 2,386 Page 20

23 4. Transfer values Transfer values in Transfer values out Benefits payable The Fund has twenty four current beneficiaries. Benefits payable to beneficiaries were as follows Pensions Pension lump sums AVC pensions Other payments The Trustees agreed at their meeting on 23 March 2010 to cease the death in service insurance policy and self insure instead Insurance premium 3 69 Page 21

24 7. Administrative expenses Actuarial fees are payable to the Government Actuary. Audit fees were payable to a private sector auditor Audit fees Actuarial fees The cost of administering the SPCPF was borne jointly by the Scottish Parliamentary Corporate Body (SPCB) 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 costs associated with the Fund is 0.56% per annum of the value of the Fund accrued on a daily basis. The estimated management charge for the year is 192,388 (see note 8). Baillie Gifford s charge in was 0.56% of the fund which amounted to 158, Changes in market value of investments Investments from income accrued are made at approximately monthly intervals Opening balance at 1 April 28,274 17,127 Add investments made in year 2,560 2,289 30,834 19,416 Closing balance at 31 March 34,355 28,274 Increase/(decrease) in market value 3,521 8,858 The increase in investment of 3,521,112 is after the management charge and costs associated with the Fund of 192,388 ( : 158,333). 9. Current assets Contributions due to the SPCPF The outstanding balance was received in line with the Schedule of Contributions. Page 22

25 10. Current liabilities Pension Due Audit Fee Government Actuary 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 31, , UK 11, , North America 5, , Europe 6, , Asia 3, , Other overseas Emerging 3, , Fixed Interest Bonds 1, , UK 8.43% Overseas bonds and index linked 5.83% Cash and Deposits 1, Total Fund 34, , Any investment income received on the Funds investments and any tax recoveries are reinvested in the pooled fund. The 2,560,294 invested this year has been used to purchase additional units in the Baillie Gifford Managed Pension Fund. Page 23

26 12. Additional Voluntary Contributions The 1999 Order made provision for scheme members to make additional voluntary contributions (AVCs) to supplement their pension entitlements. This provision was however discontinued under the 2009 Act although existing AVC contracts were allowed to continue under transitional provisions. Under the 1999 Order scheme members could 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 (13) 0 Increase/(decrease) in AVC investment values AVC investments at 31 March Market value of AVC investments by provider Equitable Life Scottish Widows Related party transactions During the period of account, the Fund has had material transactions with the Scottish Parliamentary Corporate Body, which is regarded as a related party. The transactions are disclosed in note 3 to these accounts as contributions receivable from the Scottish Consolidated Fund, in note 7 as costs borne by the SPCB and SPPA and note 9 as the outstanding contributions balance at the year end. None of the Trustees or 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 9,614 in ( ,953). Neither key management, staff nor any other related party has undertaken any material transactions with the SPCPF during the year. Page 24

27 Compliance Statement The purpose of this compliance statement is to disclose some additional information required by law. What is the SPPS? The SPPS provides benefits for Members and office-holders of the Scottish Parliament. All MSPs and office-holders are members of the Scheme from the date they enter the Parliament unless they opt specifically not to be. The original scheme rules were defined under the 1999 Order. The main provisions of the scheme were: 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 actuarially reduced pension paid to most former Members at any time after age 50 and completion of not less than 15 years service; ;a five eighths widow/ers 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 Additional Voluntary Contribution (AVC) scheme with an external provider. 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 site. The main scheme rule changes were 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, auditor, pension legal expert and investment managers which were previously appointed by SPCB Scheme membership participating membership of the pension scheme will no longer be available to those age 75 and over. Page 25

28 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. the removal of the opportunity to contribute to an Additional Voluntary Contribution (AVC) scheme with an external provider. Some of the provisions from the old scheme have been carried forward under transitional provisions which will expire in the year 2011/12 Relationship with State Retirement Scheme The SPPS is contracted out of the State Second Pension Scheme and participating scheme members will therefore pay a lower rate of National Insurance Contribution. The pension retired scheme members receive from this Scheme is in addition to any entitlement to State Retirement benefits. How the Trustees of the Fund Are Appointed Schedule 1, Rule 6 of the 2009 Act states that there are to be at least 3 but no more than 6 Fund Trustees. All Fund Trustees are elected by the Scottish Parliament having been nominated by the SPCB. A person who is prevented by the Pensions Act 1999 (c.26), or by any other enactment or rule of law, from being a pension scheme trustee is barred from being a Fund Trustee for the SPCPF. The Scottish Parliament may remove a Fund Trustee. A Fund Trustee may resign by giving written notice to the Presiding Officer and the other Fund Trustees. Trustee Meetings Trustee meetings are usually held quarterly unless a need arises to meet for specific purposes. During the year 4 normal Trustee meetings were held. The Trustees may act by a majority of those present at any meeting of the Trustees at which a quorum is present. A meeting of the Fund Trustees is quorate if 3 or more Fund Trustees are present or where fewer than 3 Fund Trustees hold office, if both trustees (or the sole trustee) is present. Page 26

29 Internal Dispute Resolution The Trustees have implemented an Internal Dispute Resolution procedure in accordance with the requirements of the Pensions Act Details of the procedure can be obtained from the Secretariat. Scheme Advisers Appointed by the Trustees in Connection with the Fund as at 31 March 2011 Actuary - The Government Actuary s Department Auditor - PKF (UK) LLP Bankers Royal Bank of Scotland Investment Manager - Baillie Gifford Legal Adviser Shepherd and Wedderburn Pension Administration Service Scottish Public Pensions Agency Secretariat SPCB, Human Resources Office Funding Standard The SPPS is exempt from the requirements of The Occupational Pension Schemes (Scheme Funding) Regulations However, the Fund Trustees have decided, with advice from the Scheme s professional advisers, to adopt relevant regulations as a matter of good practice where practicable. Tax Status of the Scheme The SPPS is a statutory pension scheme under Section 611A of the Income and Corporation Taxes Act 1988, as amended by Schedule 12 of the Finance Act 1999, and is a deemed registered scheme under the Pensions Act 2004 and is an approved scheme for the purposes of accepting transfer values. Investment Managers Baillie Gifford s responsibilities include: (i) carrying out all the day-to-day functions relating to the management of the Fund; (ii) the allocations of the balanced portfolio between categories of investments and for the selection of individual stocks within each category of investment; (iii) deciding whether it is appropriate to retain or realise individual investments within the portfolio; (iv) exercising the investment powers in such a way that will give effect to the principles contained in the Statement of Investment Principles (SIP), so far as is reasonably practicable, and in particular to have regard to the suitability and diversification of the investments within the guidelines set by the Fund Trustees. Page 27