Cheshire Pension Fund Business Plan

Cheshire Pension Fund Business Plan 2013/14 Published by: Cheshire Pension Fund, Cheshire West and Chester Council, HQ, Chester CH1 2NP Page 1 of 24

Contents Page Part 1 Introduction, Context and Budgets 3 1. Purpose 3 2. Background 4 3. Key Influences and Challenges 5 4. Knowledge, Development and Training 6 5. Key Statistics 7 6. Staffing 9 Part 2 Work Plan for 2012/13 10 7. Governance 10 8. Legislation and Compliance 12 9. Administration 14 10. Communication 16 11. Investments 18 12. Employer Liaison (including Funding) 20 13. Accounting 22 14. Contact Details 24 Page 2 of 24

Part 1 Introduction, Context and Budgets 1. Purpose Under the Local Government Pension Scheme (Administration) Regulations 2008, Cheshire West and Chester Council maintains a Pension Fund for just fewer than 75,000 individuals employed by over 140 different organisations. Underpinning everything we do is a commitment to putting our customers first, demonstrating the best practices in all areas of our business and controlling costs to ensure we provide outstanding value for money. This plan provides an overview of the Fund s key actions for 2013/14. Actions are grouped under the seven core areas of the Fund s business: 1. Governance 2. Legislation and Compliance 3. Administration 4. Communication 5. Investments 6. Employer Liaison and Funding 7. Accounting Within each of the core areas the Fund has identified a series of objectives which seek to set the standards under which we operate. The objectives represent the Fund s long term values and principles and will inform how we carry out our business. The purpose of the plan is to: Link the Fund s key priorities for this year to our underlying long term core objectives Form the basis for how progress against targets will be reported to the Pension Fund Committee and Consultative Forum Provide a foundation for effective business planning to ensure delivery against priorities and management of risk Provide staff, partners and customers with a clear vision of the Fund s objectives for 2013/14. In addition this plan outlines the expected payments to and from the Fund during 2013/14, including the resources required to manage the Fund. Page 3 of 24

2. Background The Local Government Pension Scheme (LGPS) is an occupational pension scheme set up under the Superannuation Act 1972. The Cheshire Pension Fund is maintained under that act and is administered by Cheshire West and Chester Council. The current regulations within which the LGPS operates are: The Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 The Local Government Pension Scheme (Administration) Regulations 2008 The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2009 The governance of the Fund is the responsibility of the Director of Resources of Cheshire West and Chester Council and the Cheshire Pension Fund Committee. Some investment elements are delegated to the Investment Sub-Committee. The day to day management of the Fund is delegated to Officers with specific responsibility delegated to the Head of Finance. He is supported in this role by the Senior Manager Corporate Finance who heads the Pension Services Team. As at 31 st December 2012 the assets of the Fund were 3bn and the Fund s Actuary estimated that there were sufficient assets to meet 73.1% of the Fund s liabilities. 2.1. Membership The total scheme members in the Fund as at 28 February 2013 was 77,297 made up of the following membership types: Total Membership 23427 23259 30611 Active Members Deferred Members Pensioners/Dependents Page 4 of 24

2.2. Types of Employers in the Cheshire Pension Fund The membership of the Fund spans 149 employers including: Types of Employing Bodies Local Authorities (Inc. Cheshire West and Chester) 26 4 32 Transferee Admission Bodies 10 32 36 9 Other Scheduled Bodies (Inc. Police and Fire) Community Admission Bodies Academies and Free Schools Colleges Town and Parish Councils 3. Key Influences and Challenges For LGPS funds, 2013/14 looks likely to be the busiest year yet. Virtually every aspect of our core business is being changed, reviewed, consulted upon or faces other external challenges. Whether the issue is Scheme change, record low gilt yields, infrastructure platforms or the budgetary challenges faced by all parts of the public sector, the need for sound business planning is essential. The business plan for the Cheshire Pension Fund provides partners and stakeholders with information on the current position of the Fund s activities and the key tasks that will be undertaken this year. Although the full list of challenges is many and varied a large part of the Fund s activity for next year will be focussed around several key themes: The introduction of a new LGPS from April 2014, will impact directly on the Fund s administration processes and governance arrangements. Key to successful implementation of the new Scheme will be a strong understanding of the changes and a robust project plan for delivery. Page 5 of 24

2013 is a valuation year which means there will be the traditional (and not inconsiderable) volume of work required to ensure the accuracy of the data submitted to the actuary. The challenge will be to work with employers to set affordable and sustainable contribution rates which reflect individual employer characteristics. Finalising the valuation outcomes and communicating them to employers will have added importance and complexity this year. Given the complexity that the LGPS 2014 will introduce to the Scheme, the challenges facing employers and the wider economic context in which the Scheme operates, 2013/14 will see communications at the heart of everything the Fund does. The Fund will build on the success of the current communications strategy to ensure that the messages are clearly defined and effectively communicated. As the Cheshire Pension Fund strives to deliver high quality services in the most efficient manner, we will continue to explore the benefits of co-operating with other funds though national procurement frameworks and other collaborative ventures. Where appropriate such co-operation across funds can provide the most efficient, effective and value for money mechanisms to successfully deliver the Fund s objectives. The Statement of Accounts for 2012/13 will be completed and audited to an earlier deadline of 31 st July this year, which represents a two month decrease in the timetable. 4. Knowledge, Development and Training The Cheshire Pension Fund has a 2 year rolling training and development plan that is approved by the Pension Fund Committee. This ensures that Trustees and Officers of the Fund continue to refresh and develop their knowledge and skills that allows them to discharge their responsibilities and also meet the requirements of the CIPFA knowledge and skills framework. The current training plan can be found on the Fund website. In addition to these formal sessions, the Fund also seeks to keep up to date with the latest developments within the Local Government Pension Scheme (LGPS) and the wider Pensions industry through the attendance at appropriate seminars and conferences. The Fund will only attend sessions that directly impact upon the Cheshire Pension Fund in that they:-- Will provide information on the latest developments within the LGPS and particularly LGPS 2014; Provide the Fund with opportunities to develop knowledge of key developments and best practice within other LGPS Funds; Provide the Fund with an opportunity to research new asset classes within the investment universe; or Are specific client conferences run by the Funds existing Fund managers or external advisors. Page 6 of 24

It is anticipated that the conferences and events that the Fund will attend during the forthcoming year are: Conference /Event Run By Delegates National Association of Pension Funds (NAPF)- LGPS Conference Local Government Chronicle (LGC) - LGPS Investment Summit NAPF 2 LGC 2 Baillie Gifford LGPS client conference Baillie Gifford *Up to 5 places available to the Fund GMO Client Conference GMO *Up to 2 places available to the Fund Local Authority Pensions Fund Forum (LAPFF) - annual conference Goldman Sachs Client seminar LAPFF Goldman Sachs *Up to 2 places available to the Fund *Up to 2 places available to the Fund Mercer investment roadshow Mercer *Up to 2 places available to the Fund Local Government Chronicle (LGC) - LGPS Investment Seminar CIPFA Pensions Network Annual conference and seminars Local Government Pension Managers Administration Conference LGC CIPFA South West Councils *1 place available to the Fund. Additional place maybe required depending on agenda *1 place available to the Fund 1 *Denotes that attendance at these learning events is free. Cost of attendance at remaining events and travel costs are included within the Funds budget. It should be noted that for paid events, more than one delegate will only attend if there are numerous workshops that run concurrently therefore require more than one attendee. 5. Key Statistics The key statistics for the Pension Fund are shown below: The Fund currently pays benefits to over 22,000 individuals Expected contributions income from Employers in 2013/14 is 115m and Pension Fund Members is 32m The anticipated amount of benefits to be paid out in 2013/14 is 146m Page 7 of 24

In 2012/13 over 30,000 separate tasks and procedures were processed through the Fund s automated task management system. These range from complex pension tax calculations to straight forward address changes and everything in between. Among some of the most high volume work, the Fund processed; o 2,500 retirement estimates o 1,600 actual retirements o 3,200 deferred benefits Last year, in an average month, our Helpdesk team dealt with 5,700 individual letters and emails. In order to deliver services to the Cheshire Pensions Fund an administration budget is held, the details of which are summarised in the table below. Category (000) 13/14 Staffing 1,298 Other Supplies & Services 366 Actuarial Fees 158 IT 130 External Audit Fees 29 Printing & Postage 61 Legal Fees 29 Income (3) Total 2,068 In addition to the costs above the fund will also commission investment consultancy support and actuarial advice which is currently provided by Mercer and Hymans Robertson. Page 8 of 24

6. Staffing 2013/14 Structure The following table shows the total staffing establishment for managing the Cheshire Pension Fund for 2013/14. Section Grade No of Posts Governance, Legislation and 12 2 Compliance, Administration, and Communication 10 4 7 8 6 9 4 4 3 1 Sub-total 28 Employer Liaison & Funding 12 1 10 1 Accounting 12 0.5 7 1 4 2 Sub-total 3.5 Investments 12 1 Total 34.5 Page 9 of 24

Governance Objectives 1. To ensure that the Pension Fund is governed and administered by Pension Committee Members and Officers who have the appropriate knowledge and skills in order to discharge their responsibilities. 2. To ensure that the Governance arrangements of the Pension Fund allows Pension Committee Members and Officers to discharge all of their responsibilities efficiently and effectively. 3. To understand, manage and monitor the risks to the Fund. Part 2 Work Plan for 2013/14 4. To ensure that the Fund procures the most appropriate services and goods at the most competitive price. 5. To be accountable to the Fund's Members and Employers for all decisions made. Tasks Action How will this be achieved? Objective Reference 1. Develop the Fund s business plan for 2013/14. Business plan to be developed and signed off by Pension Committee by 28/03/2013. 2, 3 2. Carry out the training plan for elected members in line with CIPFA Knowledge and skills framework. Plan has been developed and is being rolled out. 1,2 Page 10 of 24

Action How will this be achieved? Objective Reference 3. Carry out the training plan for officers in line with CIPFA knowledge and skills framework. Plan has been developed and is being rolled out. 1,2 4. Review existing Pension Administration Software Package (AXISe). Prepare business case detailing the case for change which will include procurement process, cost, efficiency savings and timescales. 4 5. Produce Annual Report. Publish Annual Report on Fund s website within agreed timescales. 5 6. Publish Pension Fund Committee and Pension Consultative Forum outcomes and actions. Publish outcomes and actions on the Fund s website. 5 7. Continue to report against business plan objectives to Pension Committee. 8. Review the Fund s governance arrangements in light of output from Public Service Pensions Bill and related LGPS changes. 9. Review of all the Fund s existing contractual relationships. Quarterly reporting to Pension Committee level in addition to bi-annual reporting to the Pension Consultative Forum. Monitor progress of PSPB and related issues (e.g. pensions' boards, scheme manager definition) and ensure governance arrangements are appropriate. Consider all of the Fund s existing contracts to ensure they continue to be appropriate and offer the best available value for money. 5 5 4 Page 11 of 24

Legislation and Compliance Objectives 1. Understand and ensure compliance with the existing legislative framework of the Local Government Pension Scheme (LGPS), other overriding relevant legislation and, where appropriate other guidance. 2. Continually understand the impact of potential changes to and compliance with, the legislative framework of the LGPS and influence these changes where appropriate. 3. Communicate all legislative changes within the LGPS to the Fund's Employers and Pension Fund Members in a timely manner meeting statutory requirements. Tasks Action How will this be achieved? Objective Reference 1. Influence the direction of the new LGPS from April 2014. Task continues from last year. Respond to consultations on new regulations which are due to be in place in April 2013 in advance of the new schemes introduction from April 2014. Anticipated consultations in Sept 2013 on cost control and governance. These consultation responses will be distributed electronically to Employers and published on the Fund s website. 2,3 2. Evaluate Fund s current AVC provision. Exercise undertaken to assess whether the two current providers used by the Fund are providing the best level of service available on the market. 1 Work prioritization means that this item was carried forward from 2012/13. Page 12 of 24

3. Develop processes to reflect the LGPS 2014 and ensure all payments and procedures are compliant with the LGPS and overriding legislation. Await publication of LGPS 2014 regulations. Analyse changes, seek professional advice and collaborate with other funds and other bodies in order to revise all processes. 1 Action How will this be achieved? Objective Reference 4. Review compliance with current legislation. Review current compliance within existing legislative framework of the Local Government Pension Scheme (LGPS), other overriding relevant legislation and, where appropriate other guidance to develop baseline compliance in advance of any legislative changes. 2 5. Issue benefit statements to active members in line with disclosure regulations. 6. Issue benefit statements to deferred members in line with disclosure regulations. Statements issued. 1,3 Statements issued. 1,3 Page 13 of 24

Administration Objectives 1. To provide a first class service to all Pension Fund Members including actives, deferreds, pensioners and dependants. 2. To ensure that Benefits are paid to Pension Fund Members in a timely and accurate manner. 3. To ensure that the Administration of the Pension Fund is carried out in a cost effective manner that provides Value for Money to Employers, Pension Fund Members and taxpayers. 4. To ensure that all data held is secure and can be accessed by authorised personnel only. Tasks Action How will this be achieved? Objective Reference 1. Ensure the Fund is ready for the delivery of LGPS 2014. LGPS 2014 project to ensure all processes and procedures are efficient and that customer satisfaction is maintained throughout the transition. 1,2 2. Develop staff training plan. Staff training to be reviewed following a restructure of the Pension Team and the requirement for staff to be ready for LGPS 2014. 1,2 3. Regular reconciliation of payroll and pensions database. 4. Comply with changes to pension taxation legislation. Quarterly reconciliation between pension database and payroll systems to identify and correct any discrepancies. Changes to annual allowance and lifetime allowance are due to take effect from April 2014. The fund needs to understand and communicate the significance of the changes to the appropriate group. 1,2,3,4 1,2 Page 14 of 24

Action How will this be achieved? Objective Reference 5. Complete over 90% of CIPFA s key benchmark processes within target. 6. Complete Annual Employer Contribution Returns. 7. Complete annual increase for all pensioners. To be achieved through regular performance monitoring, continued process review to maximise efficiency and effective business planning. Success against targets will be reported quarterly to the Pension Fund Committee. Validate and cleanse the member data received from the Fund Employers, post to Pension Fund Member records to run Annual Benefit Statements and submit accurate data as part of the 2013 Actuarial Valuation. All pensions in payment increased in line with The Pensions Increase (Review) Order 2012. 1,2 1,3,4 1,2,3 Page 15 of 24

Communication Objectives 1. To seek to exploit the most appropriate and up to date communication media in order to effectively communicate with Employers and Pension Fund Members of the Fund. 2. To ensure that all communications are simple, relevant and have impact and meet the requirements of external and internal users. 3. Ensure Employers clearly understand their roles and responsibilities under the LGPS to allow them to best discharge their duties in an efficient way that provides the best service to their employees. 4. Ensure that Pension Fund Members, prospective Pension Fund Members and Employers understand the LGPS and how it affects them so they can make informed decisions. 5. Understand that communication is a two-way process and seek to learn from feedback from internal and external customers. Tasks Action How will this be achieved? Objective Reference 1. Develop the Fund s Communications Strategy. Communications Strategy to be developed and signed off by the Pension Fund Committee. 1,2,3,4,5 2. Advise Employers on their pension obligations under the LGPS and overriding pensions legislation. The Fund will work and engage with Employers through strategic meetings, employer newsletters, technical guides and employer training as required in order to enhance the service for Employers. 1,2,3,5 Page 16 of 24

Action How will this be achieved? Objective Reference 3. Reform of the Local Government Pension Scheme. 4. Ensure Scheme members, pension beneficiaries and potential members understand the LGPS and how it affects them. 5. Identify new communication methods for both Employers and Pension Fund Members. To prepare and engage Employers and Pension Fund Members for the introduction of the new Local Government Pension Scheme from April 2014 by providing regular updates online using the reform section of the website, through updated leaflets for Pension Fund Members and technical bulletins for Employers in line with the Fund s Communication Strategy. The Fund will constantly seek to review all letters, publications and electronic communications to ensure consistency with the Communications Strategy and adherence to plain English principles. Success measured through feedback. The Fund will investigate communication methods to improve engagement with our customers, this will include automatic email alerts, and member self serve allowing customers online access to their pension records and the ability to update personal records. 1,2,3,4,5 2,4,5 1,2,4,5 Page 17 of 24

Investments Objectives 1. To ensure that the Investment Strategy of the Fund (in combination with the Funding Strategy) at whole Fund and Employer level is structured in order to be able to meet the current and future liabilities of the Fund. 2. To ensure that the Investments of the Fund are managed in an appropriate manner and all investment issues are communicated appropriately to the Pension Fund Committee in accordance with the Fund s Governance arrangements. 3. To maximise the investment returns to the Fund assets within reasonable risk parameters as set out in the Fund s Investment Strategy. 4. To take no more risk than is necessary to meet the long term funding objectives with an acceptable likelihood of success (i.e. avoid unrewarded risk). 5. To manage the liquidity of the Fund to avoid the risk of being a forced seller of long term assets to meet short term benefit payments. Tasks Action How will this be achieved? Objective Reference 1. Triennial Investment Strategy Review. Strategic Investment consultant to undertake review and deliver multistrategy solution that meets the requirements of new employer groups. 1,2,4,5 2. Commence implementation of outputs from 2013 Investment Strategy Review. Pending completion of Strategy Review. 1,2,3,4,5 3. Establish governance arrangements for de-risking framework. Officers / Investment consultant to submit framework proposals to Pension Committee for approval. 1,2,4 Page 18 of 24

Action How will this be achieved? Objective Reference 4. Regular investment performance updates to Committee. Quarterly performance report to Investment Sub-Committee. 1,2 5. Ongoing and timely monitoring of manager performance. 6. On-going monitoring of investable universe to identify potential investment opportunities. 7. Implement new arrangements to ensure that the Fund maximises returns from F/EX transactions (payments & receipts). 8. Audit of Tax reclaims to ensure that the Fund is maximising the recovery of tax on investment income. Monthly review of manager performance relative to target returns combined with formal annual manager monitoring meetings. Close liaison with investment consultants and attendance at industry seminars and conferences. Officers to identify preferred supplier list (F/Ex Brokers) and then obtain minimum of 3 quotes for all f/ex transactions to ensure that the most advantageous rate is obtained. Tax consultants to be appointed following tender exercise to undertake audit of current arrangements for reclaiming tax on investment income. 3 1,3,4 3 3 Page 19 of 24

Employer Liaison (including Funding) Objectives 1. At whole Fund level, to ensure that the Funding Strategy is compatible with the Investment Strategy and will achieve the objective of 100% solvency with an acceptable likelihood of success over a period of 20 years (or such other period of time as set out in the Funding Strategy Statement). At individual Employer level, to achieve 100% solvency with an acceptable likelihood of success over a period that reflects the covenant, maturity and expected period of participation of the Employer in the Fund. 2. To achieve stability in Employer contribution rates insofar as its possible (taking into account factors including but not restricted to covenant, membership, membership changes and expected period of participation in the Fund). 3. To ensure that Funding and Investment Strategies at whole Fund and Employer level adapt as necessary in the event of increasing maturity (caused for example by significant outsourcing, job cuts or opt-outs). 4. To minimise risk for Employers of significant underfunding or surplus at the point of exit. 5. To consider de-risking strategies at both Fund and Employer level when conditions make it possible to remove unrewarded risk whilst maintaining an acceptable likelihood of achieving long term funding objectives. 6. To minimise the risk of default or non-payment of debts due to the Fund (and so protect other Employers in the Fund). 7. To ensure that funding and security requirements for individual Employers reflect their covenant. 8. To ensure that Funding and Investment Strategies are robust to uncertain future experience and events or will be adapted appropriately in light of emerging future experience and events including Pension Fund Members living longer. Page 20 of 24

Tasks Action How will this be achieved? Objective Reference 1. Develop an appropriate de-risking strategy at total fund level. 2. Investment Strategy and Contribution are compatible to meet long term solvency objective. 3. Employer funding and contribution strategies reflect covenant, membership, membership changes and expected period of participation in the Fund. 4. To minimise the risk of default or nonpayment of debts due to the Fund (and so protect other Employers in the Fund). 5. To minimise risk for Employers of significant underfunding or surplus at the point of exit. 6. To ensure that funding and security requirements for individual Employers reflect their covenant. Research options and propose a de-risking strategy and governance arrangements for sign off by the Pension Fund Committee. Deliver triennial valuation and Funding Strategy Statement with actuarial and investment strategies considered in a coherent and compatible manner having taken appropriate professional advice. Ensure Feed employer monitoring database is accurate and up to date and key outputs are used as inputs into the triennial valuation. Robust application of admission policy to ensure that all new employers have appropriate bond or parent company. Review of all bonds as part of valuation and seek updated bond amount where appropriate. Regular use of online funding updates to monitor funding levels for employers approaching exiting the scheme and adjusting contribution strategy as appropriate. Develop a policy and mechanism to capture and score relative covenant and implement a process for regular review. 2,3,4,5 1 1,2.3,7 7,8 4,5,6 7 Page 21 of 24

Accounting Objectives 1. To ensure that the Accounting Arrangements of the Fund are robust and meet all statutory requirements. 2. To ensure that income is collected by the Fund in a timely manner. 3. To ensure that the book cost of asset values held in the general ledger agrees to the market values held by investment managers/custodian. 4. To maximise the amount of recoverable income received into the fund. Tasks Action How will this be achieved? Objective Reference 1. Preparation of the Statement of Accounts in accordance with statutory requirements and obtain an unqualified opinion. 2. Work with external audit to review the accounts and obtain the unqualified opinion. 3. Ensure all investments held by managers are accurately reflected in the accounts. Produce the Statement of Accounts in accordance with the latest Code of Practice and within deadlines. Prepare for production of accounts throughout the year and keep up to date with accounting policy changes. Produce working papers to support the accounts within a reasonable timeframe and assist the auditor with any further information requests. Gather information to support valuation techniques and accounting estimates ahead of the audit. Reconcile all balances between the Investment Managers, Custodian and General ledger on a quarterly basis. 1 1 3 Page 22 of 24

4. Monitor and reconcile all income due to the Fund. Regular monitoring of income received with quarterly reconciliations. 2 5. Work with external audit to review the accounts and obtain the unqualified opinion. Produce working papers to support the accounts within a reasonable timeframe and assist the auditor with any further information requests. Gather information to support valuation techniques and accounting estimates ahead of the audit. 1 6. Monitor and reconcile all investment balances for the Fund. Regular monitoring of investment balances with quarterly reconciliations. 2 7. Monitor income recovered by the custodian. Regular monitoring of income recovered by the custodian (dividend income and recoverable tax). 4 8. Monitor rental income recovered by the property investment manager. Regular monitoring of rental income recovered against forecast cash flow. 2,4 Page 23 of 24

For queries relating to the Business Plan or for more information regarding the Cheshire Pension Fund please contact our helpdesk as follows: Tel: 01244 976000 Email: pensions@cheshirewestandchester.gov.uk Alternatively, you can contact a member of the Pensions Management Team as follows: Head of Finance Mark Wynn Tel: 01244 972537 Email: M.wynn@cheshirewestandchester.gov.uk Senior Manager, Corporate Finance Stephan Van Arendsen Tel: 01244 973727 Email: stephan.vanarendsen@cheshirewestandchester.gov.uk Benefits Administration Manager Ian Colvin Tel: 01244 977144 Email: ian.colvin@cheshirewestandchester.gov.uk Pensions Development Manager Mark Futter Tel: 01244 972963 Email: mark.futter@cheshirewestandchester.gov.uk Investments Accountant Steven Tranter Tel: 01244 972533 Email: steven.tranter@cheshirewestandchester.gov.uk Employer Liaison Nick Jones Tel: 01244 972652 Email: nick.jones@cheshirewestandchester.gov.uk Fund Accountant Heidi Catherall Tel: 01244 972665 Email: heidi.catherall@cheshirewestandchester.gov.uk Our website contains all up to date information relating to the LGPS. Please visit. Contacts and Further Information To promote accessibility for all, this document can be made available in other formats upon request. Page 24 of 24