2000/2001

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snb Metrooolitan?6lF Borough of Wirral EEffieFr*aFlftifit il

KI(NOIAISLEY

The City of Liverpool

CHAI RMAN'S I NTRODUCTION

MANAGEMENT STRUCTURE

INVESTMENT REPORT

FINANCIAL STATEMENTS

STATEMENT OF RESPONSI BI LITI ES

AUDIT REPORT

SCHEME ADMINISTRATION

CONSU LTI N G ACTUARY'S STATEM ENT

APPENDIX A EMPLOYER MEMBERSHIP

APPENDIX B FUND BACKGROUND

APPENDIX C PENSIONS COMMITTEE ITEMS

APPENDIX D INFORMATION CONTACTS

2

4

5

9

14

15

16

20

21

22

23

24

As Chair of the Pensions Commiftee, I am pleased topre sent the Mersey side Pension F u nd's Annual Report forthe year ended 31 March 2001. The aim of the report is tohighlight the importanf r.ssues affecting the Fund over thelast twelve months as well as providing more generalinformation regarding the pension scheme.

llr r l l

tugWThe OverallAim of the Fund

The principal aim of the Fund remains the same, namely, to provide secure pensions, effectively and efficientlyadministered at the lowest cost to the contributing employers. This requires the Fund striking a balance betweenachieving the most from its investments and the need to exercise prudence and caution in considering the future liabilityprofi le of the Fund. To this end the Pensions Committee regularly reviews, together with the help of its variousprofessional advisers, the Fund's investments in order to ensure that these are appropriate for the Fund.

Investment Performance of the Fund

The period under review has been a diff icult and disappointing one for overallinvestment returns. The average return of all Local Authority pension funds for theyear ended 31 March 2001 was a negative 6.3%- This proved to be the worstreturn for 25 years and only the second time in the last two decades thatperformance has been negative. Against this background, the Merseyside Fundhas, again, significantly outperformed its public and private sector peer groups, byproducing a return of minus 3.9% for the period. This return placed the Fund inthe top 25o/o of Local Authority and private sector pension funds. Over the last twoand three year periods the Fund ranks in fourth place in the league table of the 93Local Authority pension funds. I am very pleased to report that the excellentrelative investment performance of recent years has now placed the Fund firmlywithin the top 33% of Local Authority pension fund performance over all t imeperiods of 1, 3, 5, 10 and 20 years.

The past year has seen very disappointing returns from all of the world'sstockmarkets. The Fund's more cautious investment style and greater exposure tosmaller and medium sized companies contributed to strong relative equity returns,particularly in the United Kingdom where the portfolio declined approximately 5%compared to the general stockmarket fall of 11%. fhe positive returns achievedfrom the fixed interest portfolios and solid returns from property helped balancethe overall result. The individual highlight was produced by the Fund's venture capital investments returning a staggering60% - which followed on from a 50% gain the previous year! The value of a well diversif ied, balanced portfolio ofinvestments has once again been clearly evident in the figures. Although the latest year's return of minus 3.9% has beensomewhat of a setback, the ten-year return on the Fund of 11.6% per annum compound is sti l l significantly ahead ofboth inflation and average earnings. The management of the fund, distribution of assets and performance are dealt within more detail later on in this report.

2

ffiffi...investment

performance... has now

placed the Fund firmly

within the top 33% of

Local Authority pension

Fund ...over all time

periods of 1,3,5,10 and

20 years.

€e

Councillor Bill Nock

Actuarial Valuation

The Fund's actuary is currently conducting the triennial actuarial review, basedon the various data as at 31 March 2001. The interim review as at March 2000indicated an improvement in the overall funding level from g4o/o to 96%. At thispoint in time it is too early to predict accurately the outcome of the current reviewbut, clearly, investment returns over the last accounting period have not beenhelpful. However, the Fund has continued to benefit from improvements in i l lhealth retirement levels and pay increases which have been less than expected.The continued improvement in mortality statistics and consequent increased lifeexpectancy of members of the Fund wil l have a marginal adverse impact onrequired contribution rates. Employers wil l be consulted with the outcome of thereview as soon as possible. which is exoected in October.

** ...th. Fund has

continued to benefit from

improvements in ill health

retirement levels.,. € sF:tr

Communication with Fund Members

The current active membership of the Fund stands at approximately 45,000 with36,000 in receipt of pensions.

The fourth annual employers' conference was again well attended in November 2000 and featured speakers from theFund's Actuary, William M Mercer and officers from the Fund, and covered changes to Pensions on Divorce Provisions,the Interim Actuarial Review and Stakeholder Pensions.

Past Changes and the Future

The Fund continually strives to improve the way it conducts its business. This not only applies to the investment,administration and Committee operations but also the delivery of services to its employer, employee, pensioner andother stakeholders. Over the past year the Fund has undertaken an extensive, detailed Best Value Review of the way itconducts and delivers its various services. This Review is currently being considered by the Pensions Committee andwill lead to further improvements in the service. The Fund has also considered the various recommendations of 'best

practice' as outl ined in the Myners Report on the pension fund industry, Although some modifications to the servicedelivery are required, I am pleased to report that the Fund already complies with the majority of the recommended bestpractice procedures in the conduct of its business.

The past year has been a challenging one for the pension administration team. The new legislation on Pensions Sharingon Divorce and the changes to the Scope of the Scheme to deal with the admission of contractors as a result of BestValue initiatives has created a great deal of activity. The Fund has also been dealing with the effects of the EquitableLife Assurance Society (ELAS) situation regarding Guaranteed Annuity Rates (GAR) following the House of Lordsdecision last July. The Fund reacted to the announcement made by ELAS in December 2000 that it was closing for newbusiness, by appointing Standard Life as an additional AVC provider from March 2001 . What has happened at ELAS isextremely disappointing and the Fund, together with other local authorit ies, is considering its legal position, in an effort toexplore all means of protecting the interests of those affected by the events at Equitable Life.

The Fund has coped well with the above developments thanks to the combined efforts of all those concerned with theFund. I would l ike to thank the Committee, f inancial advisers as well as the investment and admlnistration staff of WirralBorough Council for all their continued effort.

1 PENSION FUND MANAGEMENT COMMITTEE

Voting Members

Chairman:

C l l r W D N o c k *

Vice Chairman:

C l l r D T K n o w l e s *

Cllr P J Corcoran

Cllr G Davies

Cllr S A Holbrook*

Cl l r A Jones ' ,

Cllr I Lewis

Cl l r R K Moon

Cllr J Stapleton

C l l r G C J W a t t .

Wirral

Wirral

WirralWirralWirralWirralWirralWirralWirralWirral

Director of Finance

Head of Pensions& Investments

Cllr L T Byrom*

Cllr J Keight OBE

Cllr F L Ruse

Cllr A Smith*

Mr T Jones- (JMU)

Peter Mawdsley

Phi l ip Manson

Sefton

Knowsley

Liverpool

St Helens

Non district employer representati''E

Principal Pensions Officer

Borough Solicitor & Secretary

* denotes Members of the Investment Advisorv Panel

Employee Representatives

Ms J Boyle (Unison)Mr A Cusack (TGWU)

Mr D Jenkins (Unison)

Officers of the Fund

lan Coleman

Simon Edwards

2 ADVISERS TO INVESTMENT ADVISORY

Director of Finance

Head of Pensions & Investments

3 OTHERS

Auditor

Bankers

Consulting Actuary

Custodian of Assets

Ethical Advisers

Performance Measurement

Property Advisers

Solicitor

Additional Voluntary Contributions Providers

PANEL

J P Morgan Fleming Asset Management

Will iam M Mercer Ltd (Actuary)

District Audit

The Royal Bank of Scotland plc

Will iam M Mercer Ltd

The Bank of New York

Pensions and Investment Research Consultants Ltd

The WM Company

Edmund Kirby

Savil ls Fund Management

Wirra lMBC

Equitable Life Assurance Society

Standard Life

Management of the Fund

The overall responsibil i ty for the management of the Fund rests with the PensionsCommittee, chaired by Council lor Bil l Nock. In 2000/01 the Committee comprised ofCouncillors from the Wirral Labour group (6), Conservatives (2), Liberal Democrats (2),representatives of the four other District Authorities (Liverpool, St. Helens, Knowsley andSefton), an independent representative from the other employers, employeerepresentatives (3), the Director of Finance and other officers of the Fund. TheCommittee meets at least three times a year to review the administrative and investmentissues affecting the Fund. The Committee also ensures that the management of theFund's assets falls within the reouirements of the Local Government Pension Scheme(Management and Investment of Funds) Regulations 1998. These regulations require theFund to have regard to both diversification and suitability of investments and stipulate therequirement to take proper advice when making investment decisions.

Sinon EdwardsHead of Pensions & lnyesfmenfs

The more detailed responsibility for investment strategy and asset allocation of the Fund's portfolios is delegated to theInvestment Advisory Panel. This Panel meets quarterly to review investment strategy and to receive reports oninvestment activity undertaken in the previous period. The Panel comprises representatives from the PensionsCommittee, an independent tactical asset allocation advisor - J.P Morgan Investment Management - and members ofthe in-house investment team.

Day-to-day management of the Fund's assets is handled by the in-house fund managers, who report directly to theDirector of Finance through formal monthly Investment Operating Committee meetings. Internal managers follow ruleslaid down in a compliance manual which cover the managers' responsibil i t ies, dealing l imits and reporting requirements,as well as rules covering all investment transactions. This process is monitored by a compliance officer based within theinvestment section, and is subject to audit review

Internal fund managers maintain contact with various brokers and advisers who are considered specialists in therespective markets in which the Fund invests. They are also able to follow market developments and trends by using arange of sources including Bloomberg information screens, an important tool in today's volati le markets. Investmentdecisions are made by the in-house managers following consultation and discussion with advisers, and quite oftenfollowing contact with investee company management. Certain specialist management services are provided by externalfund managers, mainly in the areas of small companies, emerging markets and development capital. The externalmanagers are actively monitored and reviewed annually by the Fund's internal team. This team is based in Liverpool andis led by the Head of Pensions and Investments, Simon Edwards.

The Fund's property portfolio is managed by Savills Fund Management and Edmund Kirby, who both report to the Headof Pensions and Investments. The day-to-day management of the properties is handled by Insignia Richard Ellis, with anindependent annual valuation of the portfolio being carried out by Coll iers Erdman Lewis.

F igu re 1 . PropertyVenture Capital

CashIndex LinkedFixed lnterest

Emerging MarketsFar East Equities

Japanese EquitiesEuropean Equities

US EquitiesUK Equities

Total Return by Asset Class in year ended 31 March 2001

Investment Strategy

The Fund is managed within the rules and guidelines set out in the 1998 Regulations (which consolidated and simplifiedprevious regulations). These regulations set parameters for the types and limits that the Fund can invest in certain assetclasses.

The investment strategy of the Fund, developed by the lnvestment Advisory Panel, has been to maximise returns overthe medium to long term whilst having regard to its l iabil i ty commitments. Early in 1999 an asseUliabil ity study was

carried out by the Fund's consulting actuary, William M. Mercer Ltd. This study resulted in some changes to the assetbenchmark for the Fund, moving away from the local authority typical asset structure previously adopted, to a morebespoke structure better suited to matching the Fund's maturity and liabil i ty profi le. The requirement to maintain abalanced portfolio of assets across a diversified portfolio invested in a range of stocks and sectors, remains ofparamount importance.

Corporate Gorrernance

Merseyside Pension Fund supports the principles of corporate governance outlined in the'combined code' establishedby the Cadbury, Greenbury and Hampel Committees. In order to promote best practice, the Fund votes at all AGMs andEGMs of U.K. companies in which it has holdings. The Fund receives detailed advice and recommendations fromPensions and Investment Research Consultants Ltd. to support managers in making voting decisions and is an activemember of the Local Authority Pension Fund Forum. This policy meets the principle outlined in the Myners report oninstitutional investment on shareholder activism and is subject to periodic review to ensure that the Fund responds to

developments in best practice.

In accordance with Local Government Pension Scheme Regulations, a formal Statement of Investment Principles isregularly reviewed following consultation with members and advisers. The current statement is available from the Fund

office at PO Box 120, Castle Chambers, 4/6 Cook Street, Liverpool 169 2NW and covers:

Overall Responsibility for Managing the Pension FundInvestment ObjectivesInvestment PolicyRisk and Expected ReturnPolicy on Socially Responsible InvestmentPolicy on Shareholder Voting

The policy will be reviewed each year to ensure that the Fund remains in line with best practice. The Fund continues toinvest in an ethically managed fund, as well as in local companies and business initiatives.

Portfolio Distribution (Market Value at 31 March)

Figure 2.

Review of lnvestment Performance

Alan BorrowsSenior Investment Manager

The background for investment markets over the yearwas uncer ta in, wi th equi ty markets being p lagued byconcerns over the weakening world economic outlookand the reduced prospects for corporate profits. Returnsin all major equity markets were negative, with the worstfa l ls occurr ing in the previously g lamorous TMT(Telecom, Media and Technology) sectors. The Fund'sinvestment returns were effected by this troubled marketenvironment, resulting in a negative return of 3.9% onthe year Whilst this return was disappointing in absoluteterms, it sti l l placed the Fund in the top 25oh of LocalAuthority returns for the year. The average LocalAuthority Fund produced a negative return of 6.3%, withthe worst performing fund fall ing over 15%. The bespokebenchmark a lso showed a negat ive return of 6.3%.Longer term returns for the Fund have been reduceddue to this year's poor out-turn, but are sti l l well ahead ofthe average Local Authority fund over all t ime periods.

Comparative Returns for the Fund

The Fund subscribes to the WM Company performance measurement service, whichenables comparison of the Fund's investment with other Local Authority pension funds,together with the 50 largest pension funds In the United Kingdom (WM50). In addition, theperformance within asset classes is measured against relevant index benchmarks. Inearly 1999, following consultation with the Fund's actuary, the asset structure of the Fundwas changed to more closely reflect the l iabil i t ies of the Fund. A new strategic benchmarkwas established, which is shown below together with the parameters within which theFund's Tactical Asset Allocator is allowed to vary from the 'Core' position. The newstrategic benchmark is the main gauge against which investment performance wil l bemeasured in the future. The strategic benchmark wil l be reviewed to ensure it continues tomeet the l iabil i ty position of the Fund when the Fund's actuary has completed the threeyearly actuarial valuation at 31 March 2001.

Core Asset Structure,

UK EquitiesOverseas EquitiesNorth AmericaJapanEuropePacificOtherFixed InterestUK GiltsOverseas BondsUK Index LinkedCashOtherPropertyVenture CapitalTOTAL

Core Positiono/o Yo

M21

4821

24

21 4

0I3

ToleranceYo

39,4917-254-82-66-1 0040-3

24.281-504

10.183-70-26.101.5

100

Merseyside Pension FundLocal Authority UniverseInflationAverage Earnings

1 Year 5 Years 10 Yearso / o % %

-3 .9 10.3 11.6-6.3 9.5 11.42.3 2.6 2.73.8 4.7 4.6

Over all time periads (other than 1 year), the

Fund has achieved an investment return well

in excess of the rate of bath inflation and

earnings growth

The year was disappointing for equity investors with all major markets fall ing and almost unprecedented volati l i ty beingseen in share prices. The poor performance of share markets led to the first negative returns seen since'1988. Bondmarkets faired somewhat better as investors sought the safety of less volati le risk averse assets. The Fund's UK equityportfolio did particularly well during the year - in relative terms at least - with a return of -5.3%, which compared well withthe FTSE All Share Index fall of 10.8%. The Fund's returns in the United States and European equity portfolios werealso ahead of the relevant index returns.

Net Investment by Asset Class in year ended 31 March 2001

Figure 3UK EquitiesUS Equities

European Equit iesJapanese

Far EaslEmerging

Fixed

tn0ex

The Japanese market performed very badly over the year (fall ing 27 .9%) with the Fund's Japanese portfolio achieving adisappointing fall oI 37.7% - this followed an excellent performance in the previous year. UK Bond positions performeowell returning 9.4% against an index return of 7.3%, whilst Index l inked holdings only showed a return of 0.6% - roughlyhalf of the index return. The Fund's relatively large property portfolio provided another positive return at 6.8% althoughthis was some 2.2o/o behind the Local Authority average. The best performance achieved from any of the Fund's assetscame from the Venture Capital holdings, with a second consecutive yearly rise of over 50% being achieved.

Largest UK Equity31 March 2001

Holdings as at Largest Overseas Equity Holdings as at

Company

1 Glaxo Smithkline

2 BPAmoco

3 Vodafone

4 ShellTransport

5 HSBC

6 RB Scotland

7 Barclays

8 BritishTelecommunications

9 Astra Zeneca

10 Lloyds TSB

Market Value

f '000

101,255

87,300

72,375

54,400

48,952

41,924

36,218

34,170

33,600

32,15s

31 March 2001Company

Total Fina Elf

Novartis

Societe Generale

Royal Dutch Petro

Calpine

Country

France

Switzerland

France

Netherlands

US

Market Value

f '000

8,369

6,624

6,288

6,267

6,1 98

Market Value

f'000

19,750

12,750

12,450

12,150

11 ,600

542,349

The top ten holdings represent 403%of the total UK Equity Portfolio

Largest Property Holdings as31 March 2001

Property

Tunsgate Square, Guildford

Horns Road, llford

Avalon House

Farnham Retail Park, Farnham

Arun Retail Park, Bognor Regis

UK Equity

%

7.5

6.5

5.4

4 .1

3.6

3 .1

2.7

2.5

2 .5

2.4

1

2

3

4

1

2

3

4

5

at

40.3

FUND ACCOUNTFor the year ended 31 March 2001

Gontributions and Benefits

Contributions receivable

Transfers in

Benefits payable

Leavers

Administratiqn Expenses

Net withdrawals from

dealings with members

Return on Investments

lnvestment income

Change in market value of investments

Exchange

Investment Management Expenses

Net return on lnvestments

Net change in the Fund during the year

Net Assets of Fund at start of year

Net Assets of Fund at end of year

NET ASSETS STATEMENT AS

lnvestments

Fixed lnterest Securities

lndex Linked Securities

Equities

Managed or Unitised Funds

Properties

Short Term Deposits

AVC Investments

Other Assets and Liabilities

Net Assets of the Fund as at 31 March 2001

MARCH 2AO1

145,515

-22,411

81,833

422,245-170

-421

503,487

481,076

2,692,933

3,174,009

2000

E'000

203,684

304,430

1,889,380

391,660

219,350

132,789

7,485

3,148,778

25,231

2001

€'000

117,641

18,249

13s,890

151,632

11,369

3,343

166,344

-30,454

85,835-207,591

867-360

-121,249

-151,703

3,174,009

3,022,306

2000

t'000

104,819

18,285-tzs,104

134,414

8,142

2,959

AT 31

Note 2001

f'000

195,420

325,702

1,779,979

317,116

242,850

126,800

8,954

2,995,820

26,486

3,022,306 3,174,009

NOTES TO THE ACCOUNTS

1 GENERALAlthough the Scheme is exempt from the requirements of the Occupational PensionSchemes (Requirement to obtain Audited Accounts and a Statement from the Auditor)Regulations 1996, the financial statements have been prepared in accordance with theseregulations and with the guidelines set out in the Statement of Recommended Practice,Financial Reports of Pension Schemes.

The financial statements record the transactions of the Fund during the year andsummarise the net assets at the disposal of the managers at the end of the financial year.They do not take account of obligations to pay pensions and benefits which fall due afterthe end of the Fund year: The actuarial position of the Fund, which does take account ofsuch obligations, is dealt with in the statement by the Actuary on page 20 and thesefinancial statements should be read in conjunction with it.

John ParryFinancial Controller

2 ACCOUNTING POLICIES

a Basis of preparation

The financial statements are prepared in accordance with applicable UK accounting standards and with the

guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes.

a Valuation of investments

lnvestments are stated at market value. For this purpose unlisted investments are included at manager'svaluation and properties at professional valuation. For listed securities the stock exchange values are used.

Properties have been valued independently by Colliers Erdman Lewis, Chartered Surveyors as at 31 March 2001.

O Translation of foreign currencies

Assets and liabilities in foreign currencies are translated into sterling at rates ruling at the year end. Foreign

income received during the year is translated at the rate ruling at the date of receipt. All resulting exchange

adjustments are included in the revenue account.

I lnvestment income

lnterest on fixed interest stocks and on short term deposits has been accounted for on an accruals basis, lncome

from equities is accounted for when the related investment is quoted "ex-dividend".

a Rentalincome

Rental income from properties is taken into account by reference to the periods to which the rents relate and is

shown net of related expenses.

a Contributions and benefits

Contributions, excluding additional voluntary contributions, are accounted for on an accruals basis. Benefitspayable represent the benefits paid during the financial year.

a Transfers to other schemes

Transfer payments relate to those early leavers whose transfers have been paid during the year.

10

3 CONTRIBUTIONSRECEIVABLEEmployers

Normal

Early retirement funding

Employees

Normal

relating to;

Additional Voluntary Contributions

{dministering Authority

Scheduled Bodies

Admission Bodies

BENEFITS PAYABLEPensions

Lump sum retiring allowances

Lump sum death benefits

Relating to AVCs

relating to: Administering Authority

Scheduled Bodies

Admission Bodies

PAYMENTS TO AND ON ACCOUNT OF LEAVERSRefunds to members leaving service

Payment for members joining state scheme

Individual transfers to other schemes

Relating to AVCs

INVESTMENT INCOMEFixed interest securities

Index Linked Securit ies

Dividends from equities, managed and unitised funds

Net rents from properties

Interest on deposits

Other

72,748

8,065

35,298

1,530

117,641

19,662

90,537

7,442

117,641

123,866

24,794

2,593

379

151,6n

17,276

119,065

15,291

151,632

317

241

10,384

427

11,369

12,144

6,821

43,515

15,376

7,979

0

17,094

82,742

4,983

ro+Brg

1 17,698

14,764

1,902

50

1 U A 1 4

18,889

106,016

9,509

134,4'14

292

207

7,135

508

62,827

5,982

34,555

1,455

104,819

8.142

7,389

6 ,140

43,874

14,306

10,097

27

81 ,83385,835

11

T INVESTMENTSMarket Value

31.3 .00t'000

Purchasesat costt '000

SaleProceeds

t'000

Change inMarket value

t'000

Market Value31.3 .01E'000

Fixed lnterest securities

lndex Linked securit iesEquitiesManaged & Unitised FundsPropertiesShort term depositsAVC Investments

203,684

304,4301,889,380

391 ,660219 ,350132,789

7,485

45,13726,264

321,92818,06030,077

02,113

77,6370

212,259AO AR6

2,669

5,989807

24,236-4,992

-220,071-3 ,019-? onR

0163

195,420325,702

1,778,978317,',116242,850126,800

8,9543,',t48,778 443,579 388.946 -207.591 2,995,820

*Note: The change in (arket value of investments during the year comprises all realised and unrealised appreciation and depreciation

Fixed Interest Securities*UK Fixed InterestUK Corporate BondsOverseas Fixed Interest

*Other than Corporate Bonds, all are public sector securities

lndex Linked Securities

Equities

UK QuotedOverseas Quoted

Managed* and Unitised FundsUK managed fundsOverseas managed fundsProperty Unit trusts

*Unlisted Securities (mainly venture capital investments) are included inManaged Funds at a market value of f 1 10,805,000 (2000 - €97,929,000).

UK propertiesFreeholdLeasehold

Short term Deposits

Equitable Life with-profits fundEquitable Life managed pension fundEquitable Life building society fund

208,30034,550

242.850

126,800 132,789

Additional Voluntary Contributions Inveslments

The Committee hold assets invested separately from the main fund with Equitable Life Assurance Society. Membersparticipating in this arrangement each receive an annual statement made up to 30 June confirming the amounts held ontheir account and the movements in the yean The aggregate amounts of AVC investments are as follows:

200'lf'000

80,5648,596

106,260195,420

325,702

1,159,'|'52619,826

1,778,978

191,787106,79118,538

317,116

2001['000

6,484981

1,489

2000e'000

137,7848,836

57,064203,684

304,430

1,110,228779,152

1,889,380

221,948155,78313,929

391,660

196,76022,590

219,350

2000t'000

5,762o?o

784

12

8,954 7,485

II

CURRENT ASSETS AND LIABILITIES

Assets

Contributions due

Accrued and outstanding investment income

Due from stockbrokers

Cash at Bank

Sundries

Liabil it ies

Due to stockbrokers

Transfer values payable

Provisions

Miscellaneous

Externally Managed

Phill ips & Drew

Lombard Odier

Internally Managed

2001

€'000

10,048

12,857

2,894

3,386

2,874

32,059

0

444

398

4,731

fm

21

21

2,987

2000

f'000

7,448

11,695

2,888

3,987

4,422

30,440

1 9

280

43

4,867

10

5,573 5,209

Total Other Assets and Liabilities 26.486 25,231

COMMITMENTS

Commitments for investments amounted to f31.960,000 at 31 March 2001.

RELATED PARTY TRANSACTI ONS

Administration costs include charges by Wirral MBC in providing services in its role as administering

authority to the Fund, which amountto t2,243,000 (2000 t2,011,863). Such charges principally relate to

staffing required to maintain the pension service. A specific declaration has been obtained from principal

officers and Pensions Committee members regarding transactions with such persons or their related

parties. No declarable related party transactions have been reported under this procedure.

SUMMARY OF MANAGER'S PORTFOLIO VALUES

VALUES AT 31 MARCH 2001 (excluding AVC Assets)

11

0.7

0.7

42

2,945

1 . 4

98.6

100^0

13

The Authority's Responsibilities

The Council as Administering Authority of the Merseyside Pension Fund is required:

O To make arrangements for the proper administration of the financial affairs of the Fund and to secure that one of

its officers has the responsibility for the administration of those affairs. In this authority, that officer is the Director

of Finance.

a To manage the affairs of the Fund to secure economic, efficient use of resources and safeguard its assets.

Ian ColemanDirector of Finance

The Director of Finance's Responsibilities

The Director of Finance is responsible for the preparation of the Fund's Statement of

Accounts which, in terms of the Chartered Institute of Public Finance and Accountancy

Code of Practice on Local Authority Accounting in Great Britain (the Code), is required to

present fairly the financial position of the Fund at the accounting date and its income and

expenditure for the year ended 31 March 2001.

In preparing this statement of accounts, the Director of Finance has:

a Selected suitable accounting policies and then applied them consistently

a Made judgements and estimates that were reasonable and prudent

O Complied with the Code

The Director of Finance has also:

Kept proper accounting records which were up to date

Taken reasonable steps for the prevention and detection of fraud and other

irregularities

The Director of Finance's Certificate

I certify that the Statement of Accounts presents fairly the financial position of the Fund at 31 March 2001 and its

income and expenditure for the year then ended.

o

O

Director of Finance

17 September 2001

1 4

I have completed the audit of the Statement of Accounts of the Merseyside Pension Fund on pages 9 to 13 which have

been prepared in accordance with the accounting policies applicable to local authorities as set out on page 10.

Respective Responsibilities of the Director of Finance and Auditors

As described on page 14, the Director of Finance is responsible for the preparation of the Statement of Accounts. lt is

my responsibil i ty to form an independent opinion, based on my audit, on that Statement and to report my opinion

thereon.

Basis of Opinion

I carried out my audit in accordance with the Audit Commission Act 1998 and the Code of Audit Practice issued by the

Audit Commission,vhich requires compliance with relevant auditing standards.

My audit included eiamination, on a test basis, of evidence relevant to the amounts and disclosure in the Statement of

Accounts. lt also included an assessment of the significant estimates and judgements made by the Fund in the

preparation of the Statement of Accounts and of whether the accounting policies are appropriate to the Fund's

circumstances, consistently applied and adequately disclosed.

I planned and performed the audit so as to obtain all the information and explanations which I considered necessary in

order to provide me with sufficient evidence to give reasonable assurance that the Statement of Accounts is free from

material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion I also evaluated the

overall adequacy of the presentation of information in the Statement of Accounts.

Opinion

In my opinion the Statement of Accounts presents fairly the financial transactions of the Fund for the year ended 31

March 2001, and of the amount and disposition at that date of its assets and liabil i t ies, other than liabil i t ies to pay

pensions and benefits after the end of the scheme vean

/tU-''* @DistrictAuditor

-

17 Seotember 2001

1 5

The Merseyside Pension Fund operates the Local Government Pension Scheme whic-

provides for the occupational pensions of employees, other than teachers, police officers

and fire fighters, of the local authorities within the Merseyside area. lt also operates the

Scheme for members of other organisations which have made admission agreements

with the Fund.

A list of participating employers is shown at Appendix A. The Scheme is a public service

pension scheme regulated by statute through the Secretary of State for the Environment

Transport and the Regions. lt is a contributory final salary scheme which is contracted ou:

of the State Earnings Related Pension Scheme and is exempt approved for tax purposes

Peter MawdsleyPrincipal Pensions Officer

Development of the Scheme

Since 1922 the Local Government Pension Scheme has developed from a scheme which just provided pensions for

officers only, to today's Scheme which provides pensions and lump sums for all members, spouses and children s

pensions, i l l health, redundancy and death cover. Quite clearly it is a comprehensive scheme and yet, through the co-

operation of the Government, employer and employee representatives, the Scheme is constantly changing and adapting

to modern day needs and demands.

Membership

Contributors

Pensioners

Deferred beneficiaries

31 March 2001

45,240

35,84

1 3,{ 01

31 March 2000

46,788

34,682

1 0 , 8 1 9

1 6

Legislation

The principal regulations were amended during the year by the following statutory instruments:-

The Local Government Pension Scheme (Amendment) Regulations 2000

(lnto force 28 April 2000)

The Local Government Pension Scheme (Greater London Authority etc.) Regulations 2000

(lnto force 18 May 2000)

The Local Government (Early Termination of Employment)(Discretionary Compensation)(England and Wales)

Regulations 2000

(lnto force 21 June 200O)\

The Local Government Pension Scheme (Management and Investment of Funds)(Amendment) Regulations 2000

(lnto force 17 October 2000)

The Local Government Pension Scheme (Pensions Sharing on Divorce) Regulations 2000

(lnto force 1 December 2000)

The Local Government Pension Scheme (Miscellaneous) Regulations 2001

(lnto force 2 April2001)

The Local Government Pension Scheme (Amendments) Regulations 2001

(lnto force 1 May 2001)(Regulation 17(f) 1 September 2001)

Further information on the content and effects of these changes is available on request from the Fund.

1 7

Control of Early Retirement Costs

The Fund is continuing to monitor the costs of non-il l health early retirements and to require additional contributions fror-those employers who exceed their agreed capital allowance..

Service Standards Charter

Results of performance against target are shown below:

Performance Targets

1 Payment of retirement benefits

2 Payment of monthly pensions

3 Payment of transfer values

4 Provision of inward-transfer quotes

5 Payment of refunds

6 Provide mis-selling costs

7 Provide valuation in divorce cases

8 Respond to members'enquiries

Target

7 days

100Yo

7 days

10 days

7 days

10 days

10 days

10 days

Within Target Performance %

88

100

92

88

97

88

96

85

In-House AVC Arrangement

In July 2000, following the House of Lords decision in the case concerning Guaranteed Annuity Rates (GARs) and theru l ing that f1 .5 b i l l ion had to be t ransferred f rom non GAR pol icyholders to GAR pol icyholders, Equi table L i feannounced that it was putting itself up for sale. lt announced that with-profits policyholders would suffer a loss o'investment growth for the period 11112000 to 311712000 equivalent to 5% of fund value.

In December 2000, the Society closed to new business having failed to find a buyer and deductions were introduced fornon-contractual withdrawals from the with-profits fund. The Halifax Group announced on 6 February 2001 that it hacagreed to buy Equitable but that the purchase would not include the with-profits Fund, which would remain independentbut be managed by Halifax. As part of the deal Halifax has agreed to make further payments into the with-profits fundsubject to a compromise deal being agreed to cap the size of the GAR liabil i t ies and future sales targets being metFollowing further falls in the value of the stock market between December and March the early withdrawal reduction wasincreased from 10% to 15%.

On 16 July 2001, Equi table L i fe announced that i t was imposing a reduct ion of up to 16% of the pol icy values o iwith-profits funds as at 31 December 2000 and that no investment growth was to be added to such policies for theperiod 11112001 to 30/6/2001. In addition the assumed future investment growth for such policies from 11712001 was tobe reduced from 8% to 6% oer annum.

Following these changes the early withdrawal adjustment on with-profits policies was reduced, it is now to be applied forthe first t ime to members who choose to transfer their benefits on change of employer.

The consultation process on the proposed compromise deal to cap the GAR liabil i t ies is expected to take place in theautumn with policyholders asked to vote around December. A report on whether policyholders can claim compensatiorfrom Equitable for mis-sell ing and a separate report from the Financial Services Authority on the regulation of theSociety are awaited.

In January 2001 the Fund met to consider the appointment of an additional provider of in-house AVCs and Standard Lifebegan accepting contributions in March. The Fund wil l contlnue to inform members of developments as they occur:

1 8

Administration Expenses Benchmarking Survey.

The Fund is continuing its participation in a benchmarking survey of administration costs. For the Financial Year1999/2000 the relevant costs for the Fund were as follows: -

Cost per Member: - f5.73

Weighted Unit Cost *: - e 10.97

Overalf Position: - 4th out of 11

Average f7.73

Average t11.99

*Weighted Unit Costs are based upon the volume and type of transactions undertaken by the Pension Fund duringthe year

Internal Dispute Resolution Cases.

During the year to 31 March 2001 , a total of 9 new cases were dealt with by the panel of Appointed Persons responsiblefor complaints against decisions made by the Fund. In the cases determined, the Appointed Person rejected all of theappeals and confirmed the decisions of the Fund.

A total of 'l 5 cases were dealt with by the Appointed Person responsible for complaints against decisions made byemployers. In the majority of cases determined the Appointed Person confirmed the decisions made by employers but in3 cases payment of ill health benefits was upheld following consideration of further medical evidence.

10 cases have proceeded \o s\age 2, oi \hose cases deirded, 3 have been confirmed b1 \he Secre\ary o\ S\a\e and \case has been referred back for the employer to reconsider; on the grounds that a decision to refuse ill-health retirementwas not taken by an independent doctor; because the Authority's own approved Occupational Health Advisor was used.

The number of complaints concerning refusal to allow ill-health retirement remains at a high level.

Complaints to the Pensions Ombudsman.

\\e\e\\Srsns\rsr\u\snram\e\e\(rse\\Nsssrtrl\trs\s\utnrq\e1eannr.\ansurs\\e\us\.

Annual Employers' Conference.

The fifth Annual Conference is to be held on Tuesday 27 November, at the Peter Jost Conference Centre in Liverpool

and the results of the actuarial valuation as at 31 March 2001, as well as the latest position regarding Equitable Life wil l

be amongst the items to be discussed.

19

Merseyside Pension Fund

Accounts For The Year Ended 31 March 2001

Statement by the Consulting Actuary

The levels of contribution paid into the Fund in 2000/01 were governed by the 1998 actuarial valuation of the Func

Each employer paid the contribution rate certified in our contribution certificate dated 24February 1999 - these rates

were determined having regard to the individual circumstances of that employer.

The principal f inancial assumptions used for the 1998 actuarial valuation were as follows:

lnvestment return

Earnings growth"

Price inflation

For past service liabilities

6.3 per cent per annum



For future service liabilities




The valuation method used was the Proiected Unit Method.

The results of the 1998 valuation showed that, at the valuation date of 31 March 1998, the Fund's assets were sufficienl

to cover 94 per cent of its liabilities.

At)til/ [ I${t ,H

Carol Pearl

Fellow of the Institute of Actuaries

August 2001

Birkenhead Sixth Form CollegeBurton Manor Residential College

Carmel CollegeDingle, Granby, Toxteth Education Action Zone

Halewood Parish CouncilHugh Baird College

King George V CollegeKnowsley Community College

Knowsley MBCKnowslev Parish Council

Liverjoot City CouncilLiverpool Community College

', Liverpool John Moores UniversityMersey Waste Limited

Merseyside Fire & Civil Defence AuthorityMerseyside Magistrates Committee

Merseyside Passenger Transport Authority

CURRENT SCHEDULED BODIES

CURRENT ADMISSION BODIES

Merseyside Passenger Transport ExecutiveMerseyside Police AuthorityMerseyside Probation ServicePrescot Town CouncilRainford Parish CouncilRainhil l Parish CouncilSefton MBCSouthport CollegeSt. Helens Community CollegeSt. Helens MBCSpeke Garston Education Action ZoneValuation and Community Charge TribunalWaste Disposal AuthorityWhiston Parish CouncilWirral Metropolitan CollegeWirra lMBC

Age Concern - LiverpoolAnfield Citizens Advice Bureau

Arriva (Merseyside)Bellerive Convent

Birkenhead Citizens Advice BureauBirkenhead Council for Voluntary Service

Birkenhead School LtdCareer Connections Ltd

Career Decisions LtdCDS Housing

Central Youth Club LtdCommunity Technical Services

Compass Group PlcCornerstone Care Ltd

David Lewis Hotel and Club AssociationDiocese of Liveroool

Drug FreeEton Lodge Training HomeFalkner House Association

Garston Citizens Advice BureauGlenvale Transoort LtdGroundwork Trust Ltd

Holst FM LtdInterserve Ltd

Jarvis Worksoace FMKensington Citizens Advice Bureau

LACOTSLiverpool 8 Law Centre

Liverpool Airport PLCLiverpool and Knowsley Family Service Unit

Liverpool Association for the DisabledLiverpool Citizens Advice Bureau

Liverpool Community RightsLiverpool Council for Social Aid

Liverpool Hope University CollegeLiverpool Housing TrustLocal Government AssociationLocal Government lnternational BureauLorne Stewart PlcMerseyside Equal Opportunities ProjectMerseyside Development CorporationMerseyside LieutenancyMerseyside Society for the DeafMerseyside Welfare RightsMerseyside Youth AssociationMTUCU Resource CentreNetherley Citizens Advice BureauNorth West Tourist BoardNugent Care SocietyOld Swan Citizens Advice BureauParkhaven TrustSheila Kay FundSouthern Neighbourhood CouncilSpeke Citizens Advice BureauSpeke Garston Development CompanySt. Gabriel 's Community HomeSt. Helens and District Society for the DeafSt. Helens CareersThe Catholic Children's Society (Shrewsbury Diocese) IncToxteth Citizens Advice BureauUnicorn Consultancy Services LtdUniversity of LiverpoolVauxhall Neighbourhood CouncilVil lage Housing Association LtdWalton Citizens Advice BureauWirral Autistic SocietyWirral Council for Voluntarv Service

21

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Merseyside Pension Fund - Background Detai ls

The Merseyside Pension Fund was formed upon the re-

organisat ion of Local Government in 1974 when the

Merseyside County Counci l was set up to carry out

selected funct ions for the area. Smal ler funds were

combined to form one laroe fund wi th an in i t ia l s ize of

around f42 mi l l ion.

The Local Government re-organisation of 1986 saw the

abolit ion of the Metropolitan County Council, and the Fund

initially passed to the Merseyside Residuary Body. On 1

October 1987 the responsibil i ty was transferred by statute

to Wirral Metropolitan Borough Council, who were charged

with the administration and manaoement of the Fund.

The Fund at that t ime had increased in value to

approximately f1 .1 b i l l ion, a l though the October 1987

stock market crash wioed some f300 mill ion off the value

in the f i rs t month of Wirra l 's s tewardship. Since then

growth of the Fund has been steady and at t imes

spectacular With the current size of assets at 13.0 bil l ion.

the Fund is currently the fifth largest Local Government

fund, and amongst the top 40 Pension funds in the Uni ted

Kingdom.

Wirra l Counci l gave a commitment in 1987 to mainta in a

Fund presence in L iverpool to fac i l i ta te v is i ts f rom the

majority of its members, who live on the north side of the

Mersey. The administration offices are in Cook Street in

Liverpool City Centre, within Castle Chambers, an office

bui ld ing owned by the Fund.

.9+

r:l

WIRRAL MBC PENSIONS COMMITTEE

Reports Considered at Pensions Committee

The Committee met on 4 occasions during 200012001 to discuss the following items. Reports from the lnvestmenlAdvisory Panel and the Pensions Information Office are also considered at each Committee Meeting.

24 May 2000

Statement of Investment PrinciplesFunding of Early RetirementPension Sharing on divorce

Scheme of delegation

Admission Body application

12 September 2000

I nterim Actuarial Review

Mortality Rates - lmpact on contribution ratesApproved lending l istAdditional Voluntary Contributions provider (Equitable Life)Pension Fund DiscretionsInternal Dispute Resolution Procedure - UpdateBest Value ReviewDocument lmaging System - Hardware problems

Computer Hardware: Supply and Maintenance - TendersPensions Ombudsman - Appeal against decision

3 January 2001

Fund Accounts year ended 3'l March 2000 and Budget 200112002Draft Administrative Budget 2001 | 2002Best Value - Scoping Report for Best Value ReviewRevised Compliance ReportPensions Sharing on Divorce

Funding of Early Retirement costsAdmission Body application

AVC provision - Equitable Life updateLocal Authority Pension Fund Forum

14 March 2001

Best Value - Progress report

Strategic Asset Allocation Benchmark and InvestmentPerformance Target

Proposal for the introduction of dependants' pensions

Admission Body applicationCIPFA Pensions Conference

Non-recovery of Overpayments

I NVESTI \1ENT ADVISORY PANEL

Meetings were held on:- 10 May 2000, 20 July 2000,26 October 2000,

and 8 Februarv 2001.

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Internet Website

Merseyside Pension Fundhttp:/AffWW. M E RSEY-PE NS-FU N D. DEMON.CO. U K

Head of Pensions & lnvestments

Pensions Admi nistration

Pensions lnvestment

Financial Contro'ller

Transfers

Benefits/Payroll

Communicat ion

AVC / Added Years

I nformation Technology

Simon Edwards

Peter Mawdsley

Alan Borrows

John Parry

Margaret Rourke

Kevin Greenough

Sue Davies

David Brown

Karl Sherbrooke

0151 227 3316

0151 236 4205

0151 227 3316

0151 227 3316

0151 236 4197

0151 236 4208

0151 236 4208

0151 236 4240

0151 236 4208

1307

1 333

1 309

1312

1 369

1354

1 361

1 380

1342

Fund Decisions

Employer Decisions

Directorof Finance 0151 666 3491

Principal Pensions Officer 0151 236 4205

Fire and Civil Defence

Knowsley M.B.C.

LiverpoolC.C.

LiverpoolJ.M.U.

Arriva North West

MerseyTravel

Sefton M.B.C.

St.Helens M.B.C.

Police Authority

Probation Service

Waste Disposal

Wirral M.B.C.

Helen Jones

Pauline Jackson

Mike McGurk

Terry Jones

Les Usher

Linda Gedman

Mike Nelson

Eric Astley

Ann Wil l iams

Kevin Stamper

Peter Leyland

Brian Beecroft

0151 225 2194

0151 443 4177

0151 225 2221

0151 231 3562

0151 5222814

0151 227 5181

0151 922 4040

01744 456038

0151 709 6010

0151 920 9201

0151 709 3607

0151 666 3524

4126

8251

2351

2000/2001

Documents

Transcript of 2000/2001