Pensions continue to be front page news, and this is generally bad news with significant deficits in pension funds continuing to be reported and some private sector scheme members sadly seeing their pension promise broken.
We have been affected by the low investment returns over the last five years and declining interest rates which together have resulted in funding levels falling dramatically. I am pleased to report that the impact on GMPF and its employers has been materially less because of excellent relative investment performance enabling the Fund to contain the increase in average employer contributions and maintain employer rates at the lowest levels nationally.
Our aim remains to provide secure pensions, effectively and efficiently administered at a low stable cost to employers.
Excellent Returns
During the year the Fund increased in value to £7.36bn delivering a return of 12.4% and ranking in the 13th percentile of local authority funds. It is also pleasing to report that over a very difficult last 5 years the Fund delivered a return of 4.4% per annum compared to a local authority average of 0.7% making it the best performer amongst local authorities. Similarly over 10, 15 and 20 year durations, the Fund is ranked top or second amongst local authority funds, outperforming by around 1% per annum. The Fund’s performance history is detailed on page 7 of this report. 1% out-performance equates to over 5% of employer contributions. |
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Councillor Roy Oldham, CBE,
Chair, Pension Fund Management Panel |
Actuarial Valuation
The Actuary concluded his undertaking of the Fund’s valuation as at 31st March 2004. The funding level was assessed at 93% which is amongst the best in the country for LGPS funds and compares to a national average of around 75%. This year, the Fund was required to produce a ‘Funding Strategy Statement’ following consultation with employers. It details guidance to the Actuary on matters such as deficit recovery periods and phasing in of contribution increases. Our assumptions are at the more prudent end of the spectrum with a maximum deficit recovery period of 20 years (for local authorities) and a maximum period of 4 years for phasing in increases of contribution rates. For most employers, this enabled employer contribution increases to be contained at 1% per annum or less and this was also in line with expectations.
Regulatory and Legislative Changes
The Management Panel and myself have been supportive of the retention of the defined benefit basis of the LGPS in our submissions to ODPM consultations. We also recognise the importance of affordability of the pension promise in helping ensure the Scheme’s sustainability as demonstrated in our current levels of employer contributions.
The recent revocation of the 2005 amendments will add around 2% to employer costs, unless new regulations are introduced quickly to recover this shortfall. At the moment, the Government (ODPM) have indicated they expect employees to meet this cost either through increased contributions or a reduction in value of the benefits package. Assuming new regulations are introduced and effective from 2006, we will be able to maintain employer rates as currently reported. If such regulations are not introduced, the Panel will need to consider commissioning an interim valuation.
Looking forward, in November, we have the Pension Commission publishing its final report which will contribute to a further major legislative change. Overall, I am pleased to see the Government taking steps to ensure those who save for their pensions reap the benefit in retirement although more remains to be done and hopefully the next round of legislation will further improve this situation.
We are also preparing for the new tax regime which takes effect from April 2006 and consequential amendments to the LGPS. We will also continue to contribute to the fundamental review of the LGPS, the results of which are likely to be implemented in 2008/2009. It is also important that employers respond to these consultations and I encourage them to do so.
Growth in Membership and Employers
Membership continues to grow in all categories and we retain high levels of take up. For full time employees of Scheme employers I believe there is a strong case for making membership compulsory and I shall continue to make this point at subsequent reviews.
Our employer base also continues to grow as a result of partnership working and best value reviews at local authorities and this year we welcome 12 new employers. A priority for the Panel is ensuring these new employers do not increase the risks associated with default for other employers within the Fund and therefore, last year, all new admitted body employers have a local authority guarantor.
Conclusion
In summary, the Fund’s performance on both the investment and administrative fronts has continued to be excellent and this has been externally recognised in the 3 awards we won last year including Large Fund of the Year. I again thank the members of the Panel, the Advisors, Investment Managers and the staff for their work over the last 12 months.
Councillor Roy Oldham, CBE,
Chair, Pension Fund Management Panel
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