The University of Bristol Pension and Assurance Scheme Trustees Annual Report and Financial Statements for the Year Ended 31 July 2013

Transcription

1 The University of Bristol Pension and Assurance Scheme Trustees Annual Report and Financial Statements for the Year Ended 31 July 2013 Contents Administration of the scheme Trustees annual report Membership statistics Schedule of contributions Recovery plan Actuarial valuation Actuarial certifications Statement of investment principles Investment report Independent auditors report Summary of contributions Fund account Net assets statement Principal accounting policies Notes to the accounts

2 Administration of the scheme Trustees Jonathan Lord (Chairman) Pat French Professor Len Hall Tony Macdonald Andy Nield John O Hara Jayne Oram Scheme Secretary Emma Butler Scheme Actuary Tim Panter Towers Watson Limited 3 Temple Quay, Temple Back East, Bristol BS1 6DZ Investment Advisor Simon Mayne Aon Hewitt Limited 40 Queen Square, Bristol BS1 4QP Investment Managers Baring Asset Management Limited 155 Bishopsgate, London EC2M 3XY Legal & General Assurance (Pensions Management) Limited One Coleman Street, London EC2R 5AA Custodians Northern Trust HSBC plc Solicitors Osborne Clarke 2 Temple Back East, Bristol BS1 6EG Bankers RBS National Westminster Bank PLC 40 Queen s Road, Bristol BS99 5AD Auditors Mazars LLP Clifton Down House, Bristol BS8 4AN Scheme number RF 1

3 Administration of the scheme (continued) Scheme administration The scheme administration is carried out by the Payroll and Pensions Team in the Finance Services Division of the University of Bristol. Any queries should be referred to: The Payroll and Pensions Manager, University of Bristol, Senate House, Tyndall Avenue, Bristol BS8 1TH, telephone The Scheme The University of Bristol Pension and Assurance Scheme (UBPAS) was set up in 1969 to provide retirement and death benefits for all eligible employees of the University. The operation of the scheme, which is a final salary scheme, is governed by a definitive trust deed dated 20th April 2012 (as amended). The Scheme is a registered scheme within the meaning of section 153 of the Finance Act All transfer values have been calculated and verified in the manner prescribed by the legislation and regulations under the Pension Act No allowance is made in transfer values for the possibility of discretionary benefits. Members of the Scheme are contracted out of the State Second Pension. Trustees The powers of removing and appointing Trustees is exercised by deed and vested in the University. The Trustees thus comprise four Trustees appointed by the principal employer, the University of Bristol, and three Trustees nominated by the members for a 6-year term. One of the University appointments is an independent Chairman, which is subject to approval by the Trustees. The Trustees usually meet quarterly but can meet at any other time to discuss urgent business. Statement of Trustees responsibilities Under the Pension Scheme trust deed and rules, the Trustees are required to prepare accounts for each scheme year. These accounts should show a true and fair view of the financial transactions of the scheme during the scheme year and of the disposition, at the end of the scheme year, of the assets and liabilities. Assets do not include insurance policies which are specifically allocated to the provision of benefits for, and which provide all the benefits payable under the scheme to, particular members; liabilities do not include liabilities to pay pensions and benefits after the end of the year. In preparing those accounts, the Trustees are required to: Select suitable accounting policies and then apply them consistently; Make judgements and estimates that are reasonable and prudent; State whether the accounts have been prepared in accordance with guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes, subject to any material departures disclosed in the accounts; Prepare the accounts on a going concern basis unless it is inappropriate to presume that the scheme will continue in operation. The Trustees are required to act in accordance with the trust deed and rules of the scheme, within the framework of pension and trust law. They are responsible for safeguarding the scheme s assets and for taking reasonable steps for the prevention and detection of fraud and other irregularities. 2

4 Administration of the scheme (continued) Statement of Trustees responsibilities continued The financial statements have been prepared and audited in accordance with guidelines set out in the Statement of Recommended Practice (revised 2007) and regulations made under section 41 (1) and (6) of the Pensions Act Pension disputes procedures An agreed disputes procedure is in operation to resolve complaints by members, potential members and beneficiaries. All members of the scheme were sent details of the procedures. Additional copies of the forms are available from the Payroll and Pensions team (Telephone ), Senate House, Tyndall Avenue, Bristol BS8 1TH. Pensions ombudsman and occupational pensions advisory service The Government has appointed a Pensions Ombudsman to deal with complaints and disputes of fact or law in respect of pension schemes. The Ombudsman is completely independent and acts as an impartial adjudicator. Before writing to the Ombudsman however, it is better to seek help from the Pensions Advisory Service (TPAS), if there are difficulties which cannot be resolved with the Trustees. This independent voluntary organisation has expert local pension advisers who are able to help pension scheme members and beneficiaries. Both TPAS and Pensions Ombudsman can be contacted at: 11 Belgrave Road, London SW1V 1RB In addition, the Pensions Regulator is responsible for the Pension Scheme Registry which maintains a record of the addresses and other basic details of all pension plans in operation. The Pensions Regulator can be contacted at: Napier House, Trafalgar Place, Brighton BN1 4DW Pension payments Under the rules of the scheme, pensions in payment are increased in accordance with the Pensions (Increase) Act Increases awarded by the Pension Increase Orders are based on the consumer price index figure for the previous September. For September 2011, this published rate was 5.2%. Therefore, pensions in payment from April 2012 were increased by 5.2%. Deferred pensions are increased by the lesser of 5.0% per annum and the increase in the retail price index. There were no discretionary pension increases during the year. Transfers All transfer values paid were cash equivalents calculated and paid in the manner prescribed by the actuary. The calculation of transfer values includes an allowance for discretionary pension increases which may be awarded from time to time in addition to the guaranteed level of pension increases set out in the rules. 3

5 Trustees annual report to members It has been another busy year for the Trustees. Apart from the management of the Scheme s assets and liabilities, the key features of the year included: Completion of the July 2012 actuarial valuation Review of the strength of the employer s financial covenant Considering the outcome of the University s consultation with the Scheme s active members regarding changes to the future accrual and contribution rates in order to ensure the Scheme s longer term sustainability. The Trustees have agreed a number of changes to the scheme rules as required to implement these changes. Trustees The Trustee board includes 3 member nominated members together with 4 employer nominated Trustees one of which is an independent Chair to the Trustees. The Trustee board have set up an Investment Sub Committee which includes the Independent Chair as well as the Scheme s investment advisors. The Investment Sub Committee is tasked with making recommendations to the Trustee board on the Scheme s investment strategy and the first formal meeting took place on 24 October Payments to Trustees No Trustees received any payment in respect of his/ her services as a Trustees except for Jonathan Lord, the Independent Trustee and Chairman. Full details are provided in note 13 to the accounts. Conflicts of interest The Trustees have developed a conflict of interest policy, whereby all trustees and advisers are required to declare any potential continuous conflicts of interest in addition to other conflicts arising from time to time. When Trustees do have a potential conflict of interest they withdraw from the Trustees decision making process on the relevant issue. The Trustees agreed that with the governance structure of the scheme and the changing financial landscape over the coming years, it is considered an advantage to have the Finance Director of the University on the Trustee Board. Any potential conflicts of interest of the Finance Director as one of the University nominated Trustees will be managed on a case by case basis. For example, Andy Nield will play no part as a Trustee during funding negotiations. Actuarial valuation of the Scheme as at 31 July 2012 The latest available actuarial valuation of the Scheme is as at 31 July The valuation report showed that there was a decrease in the level of shortfall of the technical provisions from 88.7m in 2009 to 82.6m in From the financial covenant review, in which the Trustees deemed the University s covenant as tending to strong, the Trustees re-confirmed that a 20 year deficit recovery period to 2030 as agreed for 2008 valuation would still be appropriate. The level of deficit related contributions has been changed from the previous 5.0m pa to 6.9m pa, however for 2013/14 and 2014/15 the required payments are nil and 1.9m respectively. The reduced payments in 2013/14 and 2014/15 are in recognition of the overall prepayment of 11.9m by the University under the 2009 recovery plan as at July A full report on the results of the valuation and recently agreed Statement of Contributions are contained later in this report. 4

6 Trustees annual report to members (continued) Contributions paid in the year For the year ending 31 July 2013, the Scheme received 13.6m (2011/12: 12.1m) of contributions. This included an advance payment of additional deficit related contributions by the University of 6.9 million (2011/12: 5.0 million). A summary of these contributions is shown in Note 1 of the accounts. Changes to the scheme Following the outcome of the next formal consultation by the University with members, active members will have a choice between three rates of future benefit accrual from 1 November The contribution rates are specified in the Scheme Rules and summarised below: Option Member s contribution rate 1. 1/80ths accrual 17% 2. 1/100ths accrual 11% 3. 1/110ths accrual 9% These rates do not include members' Additional Voluntary Contributions. 5

7 Membership statistics Membership 2012/ /12 Nos Nos Active members Active members at 1 August 1,582 1,873 Less: Refund of contributions - (1) Transfer of payments to other scheme (8) (16) Deferred benefits (109) (211) Opted out (refunds paid) (2) (5) (119) (233) Less: Ill health retirements (5) (3) Early retirements (25) (26) Normal retirements (6) (16) Late retirements (7) (9) (43) (54) Death in service (1) (4) Active members at 31 July 1,419 1,582 Pensioners Pensioners at 1 August 1,324 1,270 Add: New pensioners during the year Deferred members becoming pensioners Less: Deaths (35) (35) Commutation of pension (1) - Pensioners at 31 July 1,374 1,324 Dependants Pensions payable to widows/widowers and dependent children at1 August Add: New widows/widowers Less: Death of widows/widowers (9) (17) Dependent children now over age - (1) Dependents at 31 July Deferred pensions Deferred pensions held in the fund 2,090 2,067 Total members at 31 July 5,079 5,156 Members who retired at 31 July are accounted for in the following year as the benefit payments are not due until 1 August. Signed for and on behalf of the Trustees: Jonathan Lord, Chariman 6

8 Schedule of contributions This Schedule of Contributions has been prepared on 30 October 2013 by the Trustees of the University of Bristol Pension and Assurance Scheme (the Scheme ), to satisfy the requirements of Section 227 of the Pensions Act 2004, after obtaining the advice of the Scheme Actuary, Tim Panter. The Trustees have discussed and agreed this Schedule of Contributions with the University of Bristol ( the University ). Contributions payable by active members Following the outcome of the next formal consultation by the University with members, active members will have a choice between three rates of future benefit accrual from 1 November The contribution rates are specified in the Scheme Rules and summarised below: Option Member s contribution rate 1. 1/80ths accrual 17% 2. 1/100ths accrual 11% 3. 1/110ths accrual 9% These rates do not include members' Additional Voluntary Contributions. Contributions payable by the University of Bristol from 1 November 2013 Normal contributions: 13.2% of members pensionable salaries per annum. This includes an allowance of 1.5% of pensionable salaries to meet administration expenses and the PPF levy. Recovery Plan contributions: 0.175m payable by 30 April m payable by the end of each 3-month period from 1 May 2015 to 31 July 2030 Payment dates All contributions payable by active members will be paid on or before the 19 th of the month after the month in which they are deducted from salary. All employer normal contributions will be paid on or before the 19 th of the month after the month to which they relate. Effective dates This schedule is effective from 30 October It remains effective until 31 July 2030, or earlier if replaced by a revised schedule. For and on behalf of the University of Bristol Pension and Assurance Scheme For and on behalf of the University of Bristol Name: Jonathan Lord Name: Andy Nield Position: Chairman of Trustees Position: Finance Director Date: 30 October 2013 Date: 30 October

9 Recovery plan The Recovery Plan has been prepared on 30 October 2013 by the Trustees of the University of Bristol Pension and Assurance Scheme (the Scheme ), to satisfy the requirements of Section 226 of the Pensions Act 2004, after obtaining the advice of the Scheme Actuary, Tim Panter. The Trustees have discussed and agreed this Recovery Plan with the University of Bristol ( the University ). Results of the actuarial valuation at 31 July 2012 The actuarial valuation of the Scheme at 31 July 2012 revealed a funding shortfall (the Scheme s Technical Provisions less the value of its assets) of 82.6 million. Steps to be taken to ensure that the statutory funding objective is met As at 31 July 2012, the University had made contributions that were 10m above those required under the previous Recovery Plan dated 19 May In July 2013 the University made a further contribution of 6.9m, and 5m had become due under the 2010 Recovery Plan, so total prepayments of University contributions amounted to 11.9m. Taking this into account, the Trustees and University have agreed (through this document) that the following additional contributions will be paid into the Scheme by the University to eliminate the remainder of the funding shortfall disclosed at 31 July 2012: 0.175m payable by 30 April m payable by end of each 3-month period from 1 May 2015 to 31 July Period in which the statutory funding objective should be met The funding shortfall is expected to be eliminated by 31 July 2030, which is eighteen years from the valuation date of 31 July Half the total contributions in this Recovery Plan will be paid by 31 July Matters taken into account before preparing this Recovery Plan In preparing this Recovery Plan the Trustees have taken into account the following matters. the Statement of Funding Principles dated 30 October 2013; the actuarial valuation at 31 July 2012 and the information it provides on the asset and liability structure, the risk profile of the Scheme, the profile of the membership and the effect of the assumptions not being borne out by experience; and its assessment of the financial strength of the University and its ability to pay future contributions. 8

10 Recovery plan (continued) Assumptions underlying the elimination of the shortfall The major financial assumptions used in the calculation of the Scheme s Technical Provisions of 31 July 2012 are shown in the table below. The full details of the assumptions are included in the Statement of Funding Principles dated 30 October Assumption % per annum Pre-retirement discount rate 5.4 Post-retirement discount rate 3.4 Rate of salary increases 3.6 Rate of increase of RPI 2.9 Rate of increase of CPI 2.3 The Recovery Plan allows for asset outperformance of 0.35% above the discount rates used to calculate the Technical Provisions as at 31 July For and on behalf of the Trustees For and on behalf of the University of Bristol Name: Jonathan Lord Name: Andy Nield Position: Chairman of Trustees Position: Finance Director Date: 30 October 2013 Date: 30 October

11 Actuarial valuation Actuarial valuation of the Scheme as at 31 July 2012 At least every three years, the Trustees instruct the scheme actuary to carry out a thorough examination of the Scheme known as an actuarial valuation. The valuation has three main aims: To monitor the financial position of the Scheme To check whether the Scheme s finances meet the current funding requirements agreed between the Trustees and University To advise on further contribution levels. Working out the cost of providing the Scheme s benefits is not an exact science, as it requires important assumptions about the future. By assessing the value of the benefits which have built up to a given date, and comparing it with the Scheme s assets on that date, the actuary can assess the Scheme s financial health and make recommendations about future funding. The latest triennial valuation of the Scheme showed the following results as at 31 July July 2012 m Scheme assets Amount needed to provide benefits built up Deficit 82.6 Funding level 69% The deficit reduced from 89m at the 31 July 2009 valuation to 83m at the 31 July 2012 valuation. This was mainly due to better than expected investment returns and the deficit contributions paid by the University, but these factors were partly offset by a reduction in expected future investment returns. The estimated cost of unchanged future service benefits increased from 22.1% of pensionable salaries at the 31 July 2009 valuation to 29.6% at the 31 July 2012 valuation, primarily due to a reduction in expected future investment returns. A Recovery Plan has been agreed between the Trustees and the University of Bristol, in accordance with Section 226 of the Pensions Act 2004 that aims to eliminate the 83m deficit by 31 July The Recovery Plan is included earlier in these accounts, and includes details of the 11.9m prepayments the University has made in excess of the Recovery Plan from the 31 July 2009 valuation. 10

12 Actuarial valuation (continued) Funding update as at 31 July 2013 In years when a full actuarial valuation is not carried out, the scheme actuary is required to provide an approximate funding update for the Scheme. The funding update of the Scheme as at 31 July 2013 showed the following results: 31 July 2013 m Scheme assets Amount needed to provide benefits built up Shortfall 55.9 Funding level 79% Over the year to 31 July 2013, the estimated funding level improved from 69% to 79%, with the deficit reducing from 83 million to 56 million. The main reasons for the improvement in the funding level were better than expected investment performance, and a deficit recovery contribution of 6.9m paid into the Scheme by the University in July These factors do not affect the cost of future service benefits building up. Benefits built up after 1 November 2013 Active members have a choice between three rates of future benefit accrual from 1 November The contribution rates are specified in the Scheme Rules and summarised below: Option Member s contribution rate 1. 1/80ths accrual 17% 2. 1/100ths accrual 11% 3. 1/110ths accrual 9% These rates do not include any members' Additional Voluntary Contributions. Schedule of Contributions As part of the 31 July 2012 actuarial valuation, the Trustees have prepared and agreed with the University a Schedule of Contributions for the Scheme. From 1 November 2013 active members will pay contributions as shown in the table above, and the University will pay a contribution rate of 13.2% of pensionable salaries per annum in relation to future service benefits. The University contribution rate includes an allowance of 1.5% of pensionable salaries to meet administration expenses and the PPF levy. The University will also pay deficit contributions of 6.9m in most years until 2030, as set out in the Recovery Plan. The Schedule of Contributions is included earlier in these accounts. 11

13 Actuarial certificate of technical provisions Actuarial Certification given for the purposes of regulation 7(4)(a) of the Occupational Pension Schemes (Scheme Funding) Regulations 2005 Name of Scheme: University of Bristol Pension and Assurance Scheme Calculation of technical provisions I certify that, in my opinion, the calculation of the Scheme s technical provisions as at 31 July 2012 is made in accordance with regulations under section 222 of the Pensions Act The calculation uses a method and assumptions determined by the Trustees of the Scheme and set out in the Statement of Funding Principles dated 25 October Tim Panter Towers Watson Limited Fellow of the Institute and Faculty of Actuaries 3 Temple Quay Temple Back East Bristol 30 October 2013 BS1 6DZ 12

14 Actuarial certificate of the schedule of contributions Adequacy of rates of contributions 1 I certify that, in my opinion, the rates of contributions shown in this schedule of contributions are such that the statutory funding objective can be expected to be met by the end of the period specified in the recovery plan dated 25 October Adherence to Statement of Funding Principles 2 I certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding Principles dated 25 October The certification of the adequacy of the rates of contributions for the purpose of securing that the statutory funding objective can be expected to be met is not a certification of their adequacy for the purpose of securing the Scheme s liabilities by the purchase of annuities, if the Scheme were to be wound up. Tim Panter Towers Watson Limited Fellow of the Institute and Faculty of Actuaries 3 Temple Quay Temple Back East Bristol 30 October 2013 BS1 6DZ 13

15 Statement of investment principles Investment Objective The Trustees aim to invest the assets of the Scheme prudently to ensure that the benefits promised to members are provided. In setting investment strategy, the Trustees first considered the lowest risk asset allocation that they could adopt in relation to the Scheme's liabilities. The asset allocation strategy they have selected is designed to achieve a higher return than the lowest risk strategy while maintaining a prudent approach to meeting the Scheme s liabilities. Strategy The current planned asset allocation strategy chosen to meet the objective above is set out in the table below. The Trustees will monitor the actual asset allocation versus the target weight and the ranges set out in the table below at regular meetings. Asset class Target weighting % Ranges % Bonds Index-Linked Gilts and LDI /-5.0% Corporate Bonds /-5.0% Growth assets Equities UK Equities /-5.0% Overseas Equities /-5.0% Alternatives Property 7.5 +/-2.5% Dynamic Asset Allocation /-2.5% Other 2.5 +/-2.5% The Trustees may allocate up to 5% of the allocation to Index-Linked Gilts and Liability Driven Investments (LDI) (i.e. one-third of the 15% allocation) to LDI instruments, including geared LDI instruments. The Trustees intend to make only a small allocation to LDI in the short term. While the physical allocation to Index-Linked Gilts and LDI will be restricted to 20% of the Scheme's assets, the allocation to any geared LDI will be limited so that the overall level of real interest rate hedging is limited to 25% of the value of the assets. The allocation to "Other" is intended to allow the Trustees to invest in other alternative asset classes should an appropriate opportunity arise. This Statement of Investment Principles is produced to meet the requirements of the Pensions Acts 1995 & 2004, the Occupational Pension Schemes (Investment) Regulations 2005 and to reflect the Government's Voluntary Code of Conduct for Institutional Investment in the UK. The Trustees also comply with the requirements to maintain and take advice on the Statement and with the disclosure requirements. 14

16 Statement of investment principles (continued) The Trustees have established funding level trigger points with the intention of considering increasing the allocation to Bonds as the funding level improves as follows: Technical Provisions Funding Level Allocation to Growth Assets 70% and below 70% 75% 65% 80% 60% 85% 55% 90% 50% 95% 45% 100% 40% The Trustees will consider extending the allocation to Index-Linked Bonds, including LDI, should the pricing be considered appropriate. Should the resulting actions cause the actual asset allocation to move outside of the ranges above the Trustees will consider reviewing this Statement of Investment Principles. The planned asset allocation strategy was determined with regard to the actuarial characteristics of the Scheme, in particular the strength of the funding position and the liability profile, and the covenant of the Employer. When choosing the Scheme s planned asset allocation strategy the Trustees considered written advice from their investment advisers and, in doing so, addressed the following: The need to consider a full range of asset classes The risks and rewards of a range of alternative asset allocation strategies The suitability of each asset class The need to appropriate diversification In addition, the Trustees have also consulted with the sponsoring employer when setting this strategy. Risk The Trustees recognise that the key risk to the Scheme is that it has insufficient assets to make provisions for 100% of its liabilities ( funding risk ). The Trustees have identified a number of risks which have the potential to cause a deterioration in the Scheme s funding level and therefore contribute to funding risk. These are as follows: The risk of a significant difference in the sensitivity of asset and liability values to changes in financial and demographic factors ( mismatching risk ). The Trustees and their advisers considered this mismatching risk when setting the investment strategy. The risk of a shortfall of liquid assets relative to the Scheme s immediate liabilities ( cash flow risk ). The Trustees and their advisers will manage the Scheme s cash flows taking into account the timing of future payments in order to minimise the probability that this occurs. The failure by the fund managers to achieve the rate of investment return assumed by the Trustees ( manager risk ). This risk is considered by the Trustees and their advisers both upon the initial appointment of the fund managers and on an ongoing basis thereafter. The failure to spread investment risk ( risk of lack of diversification ). The Trustees and their advisers considered this risk when setting the Scheme s investment strategy. 15

17 Statement of investment principles (continued) Risk (continued) The possibility of failure of the Scheme s sponsoring employer[s] ( covenant risk ). The Trustees and their advisers considered this risk when setting investment strategy and consulted with the sponsoring employer as to the suitability of the proposed strategy. The risk of fraud, poor advice or acts of negligence ( operational risk ). The Trustees have sought to minimise such risk by ensuring that all advisers and third party service providers are suitably qualified and experienced and that suitable liability and compensation clauses are included in all contracts for professional services received. Due to the complex and interrelated nature of these risks, the Trustees consider the majority of these risks in a qualitative rather than quantitative manner as part of each formal investment strategy review. Some of these risks may also be modelled explicitly during the course of such reviews. The Trustees policy is to monitor, where possible, these risks periodically. The Trustees receive periodic reports showing: Actual funding level versus the Scheme specific funding objective Performance versus the Scheme benchmark Performance of individual fund managers versus their respective targets Any significant issues with the fund managers that may impact their ability to meet the performance targets set by the Trustees. Implementation Aon Hewitt Ltd has been selected as investment adviser to the Trustees. They operate under an agreement to provide a service which ensures the Trustees are fully briefed to take decisions themselves and to monitor those they delegate. Aon Hewitt is paid an agreed annual fee which includes all services needed on a regular basis. Some one-off projects fall outside the annual fee and the fees for these are negotiated separately. This structure has been chosen to ensure that costeffective, independent advice is received. The fund manager structure and investment objectives for each fund manager ( mandates ) are as follows: Legal & General UK Equities to track the FTSE All-Share Index to within an acceptable range World (ex-uk) Equities to track the FTSE All World (ex-uk) Index to within an acceptable range Over 15 Year Index-Linked Gilts to track the FTSE A Index-Linked (Over 15 Year) Index to within an acceptable range Active Corporate Bond Over 10 Year Fund to outperform the iboxx Non-Gilt 10 Year Index by 0.75% p.a. over a three year rolling period. Cashflow Matching Plus (LDI) to perform in line with the stated benchmark for each of the various funds the Trustees have selected. UK Property Managed Property Fund To outperform the CAPS Property Median over a rolling three year period. 16

18 Statement of investment principles (continued) Implementation (continued) Barings Dynamic Asset Allocation Fund to achieve 3 month sterling LIBOR plus 4% p.a. over a market cycle (3-5 years) The Trustees have delegated all day-to-day decisions about the investments that fall within each mandate, including the realisation of investments, to the relevant fund manager through a written contract. When choosing investments, the Trustees and the fund managers (to the extent delegated) are required to have regard to the criteria for investment set out in the Occupational Pension Schemes (Investment) Regulations 2005 (regulation 4). The managers duties also include: Taking into account social, environmental or ethical considerations in the selection, retention and realisation of investments. Voting and corporate governance in relation to the Scheme s assets. Governance The Trustees are responsible for the investment of the Scheme s assets. The Trustees take some decisions themselves and delegates others. When deciding which decisions to take themselves and which to delegate, the Trustees have taken into account whether they have the appropriate training and expert advice in order to take an informed decision. The Trustees have established the following decision making structure: Trustees Monitor actual returns versus Scheme investment objective. Set structures and processes for carrying out the Trustee's role. Select and monitor planned asset allocation strategy. Select and monitor direct investments (see below). Monitor investment advisers and fund managers. Make ongoing decisions relevant to the operational principles of the Scheme s investment strategy. Investment Adviser Advise on all aspects of the investment of the Scheme assets, including implementation. Advise on this statement. Provide required training. Fund Managers Operate within the terms of this statement and their written contracts. Advise Trustees on suitability of the indices in its benchmark Select individual investments with regard to their suitability and diversification. 17

19 Statement of investment principles (continued) Governance (continued) The Pensions Act 1995 distinguishes between investments where the management is delegated to a fund manager with a written contract and those where a product is purchased directly, e.g. the purchase of an insurance policy or units in a pooled vehicle. The latter are known as direct investments. The Trustees policy is to review their direct investments and to obtain written advice about them at regular intervals. These include vehicles available for members' AVCs. When deciding whether or not to make any new direct investments the Trustees will obtain written advice and consider whether future decisions about those investments should be delegated to the fund manager(s). The written advice will consider the issues set out in the Occupational Pension Schemes (Investment) Regulations 2005 and the principles contained in this statement. The regulations require all investments to be considered by the Trustees (or, to the extent delegated, by the fund managers) against the following criteria: The best interests of the members and beneficiaries Security Quality Liquidity Profitability Nature and duration of liabilities Tradability on regulated markets Diversification Use of derivatives The Trustees investment adviser has the knowledge and experience required under the Pensions Act The Trustees expect the fund managers to manage the assets delegated to them under the terms of their respective contracts and to give effect to the principles in this statement so far as is reasonably practicable. Fund managers are remunerated on an ad valorem basis. In addition, fund managers pay commissions to third parties on many trades they undertake in the management of the assets and also incur other ad hoc costs. The Trustees will review this SIP at least every three years and immediately following any significant change in investment policy. The Trustees will take investment advice and consult with the Sponsoring Employer over any changes to the SIP. September

20 Investment report Market background Over the year, despite continued economic and political uncertainty, global equity market returns were strong, possibly reflecting comfort in some of the actions taken by various central banking bodies. The uncertainty around the Eurozone crisis appears to have abated after ECB President Draghi vowed in July 2012 to do "'whatever it takes" to help ease the crisis. There were of course various flare-ups in the crisis over the year with bailouts of Greece and Cyprus and also political tensions in some peripheral countries. There were some signs of economic recovery across the globe in countries such as the UK and Japan. In fact Japanese equities achieved the highest returns over the year to 2013, in local currency terms, as stocks reacted to Prime Minister Abe's stimulus package and the Bank of Japan's ("BoJ") aggressive monetary easing policy. There has been good and bad news in the US. The fiscal cliff deadline was met at the start of 2013 in a last minute agreement. However, US budget negotiations failed to yield a solution before automatic spending cuts were triggered at the beginning of March. The Federal Reserve ("Fed") also expanded its quantitative easing ("QE") programme with an indefinite term to support the US economy. Markets grew concerned in May 2013 as Fed Chairman Bernanke signalled a tapering to QE sooner than investors had anticipated. Scheme Performance across the year There have been no significant changes to the Scheme's investment strategy during the year. The allocation of the Scheme s assets as at 31 July 2013 and the target asset allocation are shown in the table below: Asset Category Investment Style Allocation (%) Target Allocation (%) UK Equities Passive Overseas Equities Passive Over 15 years Index-Linked Gilts Passive Over 10 years Corporate Bonds Active Property Active Diversified Growth Fund Active Liquidity (Cash) Fund Passive * LDI Passive Total 100.0% *The Statement of Investment Principles states that 2.5% is for allocation to 'Other'. This allows the Scheme to invest in different funds if appropriate. 19

21 Investment report (continued) Investment Performance Over the year to 31 July 2013, the investments had the following performance: Asset Category Fund Benchmark Relative Performance (%) Performance (%) Performance (%) UK Equities Overseas Equities Over 15 years Index-Linked Gilts Over 10 years Corporate Bonds Property 3.9 n/a n/a Diversified Growth Fund Liquidity (Cash) Fund Total* * The total has been calculated approximately by weighting performance of each asset class at the beginning of the year. Over the year to 31 July 2013, the combined assets outperformed the benchmark. Given the ongoing volatility across global financial markets during the past year, we believe the Scheme's investment strategy has continued to perform well. Of the actively managed funds, the largest outperformance came from the diversified growth fund manager, Barings. Scheme Outlook We have seen significant market volatility since 31 July 2012 and while the nature and diversification of the investments has and will help protect the assets from the affects of a fall in stock markets, there remains an allocation to equities and so the Scheme will not be immune to future market falls. As for last year, we anticipate market uncertainty and extreme volatility which is a result of the continuing Euro crisis and we potentially see equities struggling in the coming year as they find it difficult to sustain gains as monetary stimulus is reigned in. The Scheme is trialling a small Liability Driven Investment (LDI) portfolio strategy with Legal & General (L&G). An LDI Portfolio, when fully utilised, is designed to protect the pension scheme's funding position from changes in interest rate markets and changes in the outlook for inflation. An investment of 0.4% of the Scheme's assets has been made to see how the assets perform relative to the Scheme s liabilities. Following this trial the Trustees are now looking closer at increasing their allocation to LDI assets. Together with the Scheme's Trustees we are continuing to monitor the investment strategy; in particular the Scheme employs a dynamic strategy, which will trigger moving from growth assets to protection assets (e.g. gilts and/or LDI assets once they have been implemented) which move in line with the Scheme's liabilities once the funding level of the Pension Scheme improves. This would allow the Scheme to increase the allocation to these assets that better match the benefit payments when it is affordable to do so. In summary, we are working closely with our advisors and the University in the management of the investment strategy. The Scheme s assets have performed well during the last year, but we are expecting continuing challenges in the times ahead. 20

22 Independent auditors report To the Trustees of the University of Bristol Pension and Assurance Scheme We have audited the financial statements of University of Bristol Pension and Assurance Scheme for the year ended 31 July 2013 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). Respective responsibilities of Trustees and auditor As explained more fully in the Trustees Responsibilities Statement set out on page 2, the schemes Trustees are responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. 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 1996 made under the Pensions Act Our audit work has been undertaken so that we might state to the scheme Trustees those matters we are required to state to them in an auditors 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. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council s website at Opinion on the 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 July 2013, 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 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 Mazars LLP Chartered Accountants and Statutory Auditor Clifton Down House Beaufort Buildings Clifton, Bristol BS8 4AN 21

23 Independent auditors statement about contributions, Under Regulation 4 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulation 1996, to the Trustees of the University of Bristol Pension and Assurance Scheme We have examined the summary of contributions of University of Bristol Pension and Assurance Scheme payable in respect of the scheme year ended 31 July 2013 to which this statement is attached. 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 1996 made under the Pensions Act Our work has been undertaken so that we might state to the scheme Trustees those matters we are required to state to them in an auditors statement about contributions 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 work, for this statement, or for the opinions we have formed. Respective responsibilities of Trustees and auditors As described in the statement of Trustees responsibilities, the scheme s Trustees are responsible for ensuring that there is prepared, maintained and from time to time revised a schedule of contributions which sets out 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 any active member of the scheme and for monitoring whether contributions are made to the scheme by the employer in accordance with the schedule of contributions. It is our responsibility to provide a statement about contributions paid under the schedule of contributions and report our opinion to you. Basis of statement about contributions We planned and performed our work so as to obtain the information and explanations which we considered necessary in order to give reasonable assurance that contributions reported in the attached summary of contributions have been paid in accordance with the relevant requirements. For this purpose the work that we carried out included examination, on a test basis, of evidence relevant to the amounts of contributions paid to the scheme and the timing of those payments under the schedule of contributions. Our statement about contributions is required to refer to those breaches of the schedule of contributions which come to our attention in the course of our work. Statement about contributions In our opinion the contributions for the scheme year ended 31 July 2013 as reported in the Summary of Contributions, attached on Page 23, have been paid at least in accordance with the schedule of contributions certified by the actuary on 19 May Mazars LLP Chartered Accountants and Statutory Auditor Clifton Down House Beaufort Buildings Clifton Bristol BS8 4AN 22

24 Summary of contributions paid in the year During the year, the contributions paid to the scheme by the employer under the Schedule of Contributions were as follows: Employer normal contributions 4,027,508 Employer additional contributions under salaries exchange scheme 2,420,480 Employer additional deficit related contributions 6,900,000 Employee normal contributions 149,366 Employee additional voluntary contributions 105,124 Total contributions 13,602,478 Signed on behalf of the Trustees: Jonathan Lord Chairman 23

25 Fund account Contributions and benefits Notes 2012/ /12 Contributions receivable 1 13,602 12,132 Transfers in 2-4 Other income Total receipts 13,623 12,176 Benefits payable 4 8,318 8,266 Leavers Other payments Administration expenses Total expenditure 9,083 9,255 Net surplus from dealing with members 4,540 2,921 Returns on investments Investment income Change in market value of investments 9 22,312 11,475 Investment managers expenses 10 (229) (189) Net returns on investments 22,083 11,286 Value of fund at 1 August 181, ,825 Net increase in the fund during the year 26,623 14,207 Net assets at 31 July 207, ,032 24

26 Net assets statement Notes 2012/ /12 Investments 9 209, ,308 Current assets Current liabilities 12 (2,431) (589) Net assets of the Scheme at 31 July 207, ,032 The financial statements summarise the transactions of the scheme and deal with the net assets at the disposal of the Trustees. They do not account for obligations to pay pensions and benefits which fall due after the year end of the scheme. The actuarial position of the scheme, which does not account for such obligations is dealt with in the Trustees annual report and the actuarial report, and these financial statements should be read in conjunction with them. These accounts were approved by the Trustees of the University of Bristol Pension and Assurance Scheme on 12 December 2013 and signed on its behalf by; Jonathan Lord Chairman 25

27 Principal accounting policies Basis of preparation The financial statements have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 and with the guidelines set out in the Statement of Recommended Practice (revised 2007), Financial Reports of Pension Schemes. The financial statements summarise the transactions of the scheme 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 scheme, which does take account of such obligations, is dealt with in the statements pages 8 to 11 of the annual report and these financial statements should be read in conjunction with it. Accounting policies a) Contribution income from ordinary contributions relating to salaries and wages earned in the financial year are included on the accrual basis at rates agreed between the Trustees and the University and as recommended by the actuary. For these rates were:- Employer 13.1% Employees 9.0% Special contributions including additional deficit related contributions from the employer and additional voluntary contributions from employees are accounted for when received. b) Transfer values received and paid are accounted for when received or when paid. All values are based on methods determined by the consultant actuary and in accordance with the regulations issued under the Pensions Act There was no discretionary benefit included in the transfer values. c) Refunds of contributions and payments to Department of Social Security are accounted for when paid. d) Investment income dividends are credited to income as received. Dividends and interest are grossed up for the amount of any tax recoverable. e) Investments are marked to market and valued at the lower of bid or mid-market price. f) The money purchase AVCs to obtain additional benefits for some members requiring additional benefits are invested in policies with the Prudential Insurance Company. 26

28 Notes to the accounts 1. Contributions receivable 2012/ /12 Employer Normal 4,028 4,277 Under employees salary exchange scheme 2,420 2,591 Additional deficit contributions 6,900 5,000 Additional contribution to early retirements - - Employees Normal Additional voluntary contributions Additional contribution to early retirements ,602 12,132 The University made additional deficit contributions of 6.9m (2011/12: 5.0m) during the year in respect of the required deficit recovery contributions of 5m per year from 2010/11 for 20 years. As a result, at the year end, the University has made a total of 11.9m payment in advance. 2. Transfer values received 2012/ /12 From personal scheme - 4 Since the Scheme is closed to new members, it no longer participates in the Public Sector Transfer Club nor accepts any further members transfers in. 3. Other income 2012/ /12 Claims on term insurance policies Benefits payable 2012/ /12 Pensions 6,628 6,278 Retirement lump sums 1,622 1,876 Death in service lump sums Death in retirement lump sums Death in deferment lump sums ,318 8,266 27