Annual Report and Accounts 2007

Chair’s introduction

In October 2007, Tameside will have been the administering authority of GMPF for 20 years. During that time our aim has remained consistent - to provide secure pensions, effectively and efficiently administered at a low stable cost to employers. Managing the cost of defined benefit schemes to employers has undoubtedly been challenging in the 21st century. Factors such as improved life expectancy combined with low interest rates have resulted in increasing liabilities. Funding levels also worsened significantly as a consequence of 3 years of stock market falls ending in March 2003. Whilst we have been adversely affected by these financial factors, I am pleased to report that the impact on GMPF was materially less, primarily because of excellent relative investment performance. This has helped GMPF’s Actuary to contain the increase in employer contributions and maintain average employer rates at the lowest levels nationally.

Councillor Roy Oldham, CBE, CEng, MIMechE Chair, Pension Fund Management Panel

In 2006/07 GMPF  had an overall return of 7.3%. As a result, the GMPF increased in value by £620m to £9,563m. In comparison with other local authority funds, the return was 0.3% more than the average fund. More importantly, the long term performance of GMPF remains excellent with a long term outperformance of approximately 1% over 10, 15 and 20 year durations. To put this outperformance in context a 1% per annum outperformance currently equates to 6% of pay for employers. More details of GMPF’s performance can be found on page 9 of this report.

Funding Issues - Expectation of a return to fully funded

Following the Actuarial Valuation as at 31st March 2004, I reported an average funding level of 93%. This funding level was amongst the best in the country for LGPS funds and compared to a national average of around 75%.

By 31st March 2007, the Actuary estimates that GMPF will return to a fully funded position. However, it is likely that contribution rates for most employers will need to increase in April 2008. The main reasons for the increase are, the changes in market conditions, the increases in life expectancy, the net effect of the 2008 Scheme benefit changes and the original plan in the 2004 valuation to phase increases in over 4 years for some employers. Should contribution rates need to increase, the Actuary may use the flexibilities available to him to phase in the increases over several years to assist with affordability.

Regulatory and Legislative Changes- New Defined Benefit Scheme from April 2008

The Management Panel and myself have supported retaining the defined benefit basis of the LGPS in our submissions to Government consultations. We also recognise the importance of affordability in delivering the pension promise. This is demonstrated in our current levels of employer contributions. The regulatory issues, in particular relating to the “rule of 85” and transitional protections have proved very contentious. This rule determined the age at which members could retire on unreduced benefits. As we go to press, the Department for Communities and Local Government is at the final stage of consultation on transitional protections following the abolition of the “rule of 85”.

The Government is now finalising the regulations for the “New Look LGPS”.  It has decided to retain a final salary scheme with a normal retirement age of 65 and an accrual rate of 1/60ths. The new Scheme will be operational in April 2008. A key task for the Pensions Office is to be ready to implement the new Regulations.

Looking forward, the long term sustainability and affordability of the Scheme may well be determined by the Government’s success at introducing cost sharing provisions between employers and employees to apportion changes in Scheme costs at subsequent valuations.

Following the Pension Commission’s report, the Government is processing its long term proposals for pension provisions in general, with the aim of reducing pensioner dependency on means tested benefits. These include encouraging saving through the provision of a National Pension Savings Scheme, restoration of earnings link for pension increases and later retirement. Overall, I am pleased to see the Government is taking steps to help those who save for their pensions reap the benefit in retirement. Hopefully, subsequent legislation will further improve the position.  

Growth in Membership and Employers

Membership continues to grow in all categories, with the growth in deferred members expected to grow even more in the future. Similarly, we continue to admit new employers, mainly as a result of increased partnership working and local authorities adopting different ways of service delivery. To minimise the risk arising from future default, we require new employers to have a local authority guarantor.

Conclusion

In summary, GMPF’s long term performance on both the investment and administrative fronts has continued to be excellent. 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, CEng, MIMechE
Chair, Pension Fund Management Panel

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