WATER COMPANIES PENSION SCHEME · PDF fileWATER COMPANIES PENSION SCHEME TRUSTEE COMPANY AND...

Registration No. 10191929

WATER COMPANIES PENSION SCHEME

Annual Report

31 March 2015

WATER COMPANIES PENSION SCHEME ANNUAL REPORT 2015 CONTENTS

Trustee company and advisors 1

Trustee’s report 3

Investment report 6

Compliance statement 8

Details of employer companies 9

Statement of Trustee’s responsibilities 10

Independent auditor’s report 11

Fund account 12

Net asset statement 13

Notes to the financial statements 14

Independent statement about contributions 24

Summary of contributions 25

Appendix 1 – Actuarial certificates by sub-fund

Appendix 2 – Certifications of schedules of contributions by sub-fund

WATER COMPANIES PENSION SCHEME TRUSTEE COMPANY AND ADVISERS

1

TRUSTEE COMPANY The Water Companies (Pension Fund) Trustee Company

The following are directors of the Trustee Company:

CHAIRMAN

D B Sankey

EMPLOYER DIRECTORS A J D Ferrar A P Page A Parsons

MEMBER DIRECTORS

K J Ensell D J Guest (resigned 25 November 2014) S B Kay O Twydell (appointed 10 February 2015) R Weeden A Maughan

SCHEME ADMINISTRATOR Paymaster (1836) Limited, trading as Equiniti Paymaster

SCHEME ACTUARY R Murphy FIA, Lane Clark & Peacock LLP

INVESTMENT MANAGERS State Street Global Advisors Limited Ruffer LLP Standard Life Investments Limited Barings Asset Management Limited (removed 21 August 2014) Muzinich & Company Inc Ashmore Group plc (appointed 10 December 2014) BMO Global Asset Management EMEA (appointed 20 May 2015)

INVESTMENT CONSULTANTS C Burton Lane Clark & Peacock LLP

LEGAL ADVISER Linklaters LLP

SECRETARY A Maughan BANKERS Lloyds Bank plc

AUDITOR

Deloitte LLP Birmingham

WATER COMPANIES PENSION SCHEME TRUSTEE COMPANY AND ADVISERS (CONTINUED)

2

All general enquiries about the Scheme should be sent to:

The Secretary The Water Companies (Pension Fund) Trustee Company

Unit 6D Lowick Close Hazel Grove Stockport Cheshire SK7 5ED

Requests from individuals for information about their benefits should be sent to:-

Equiniti Paymaster Sutherland House Russell Way Crawley West Sussex RH10 1UH

WATER COMPANIES PENSION SCHEME TRUSTEE’S REPORT

3

The Trustee presents its annual report and the audited financial statements for the year ended 31 March 2015.

INTRODUCTION

The Water Companies Pension Scheme was set up under section 27(2) of the Water Act 1973, to provide the employees of the Statutory Water Companies with pension benefits comparable with those provided by the Water Authorities Superannuation Fund. This requirement, however, ceased with effect from September 1989 as a result of the Water Act 1989.

The Scheme is registered under the Finance Act 2004.

The Scheme is structured to provide benefits for the employees and former employees of eight different employers. Each employer has its own Section within the Scheme and whilst investments are made on a pooled basis, the assets in respect of benefits provided for the employees of a particular employer are segregated from the assets relating to the benefits for employees of other employers. There is no cross subsidy between the different employers in the Scheme.

The Trustee of the Scheme is The Water Companies (Pension Fund) Trustee Company, a company registered in England and Wales and limited by guarantee. The Directors of the Trustee Company have been appointed in accordance with the requirements of the Pensions Acts 1995 and 2004 and its annual accounts are filed at Companies House. Copies are also available from the Secretary.

The Council for the Trustee Company is currently made up of three Directors representing employers, five member nominated Directors and an independent Chairman. The Articles of Association of the Trustee Company set out the provisions relating to the appointment and removal of Directors, subject to legislative requirements in respect of member nominated directors.

The Trustee Company is required to administer the Scheme in the best interests of its members. To this end, the Trustee Company employs professional advisers expert in pensions administration, investment and financial management, and the Council meets regularly (normally four times a year) to supervise the operation of the Scheme and its financial management.

The financial statements have been prepared and audited in accordance with regulations made under sections 41(1) and (6) of the Pensions Act 1995.

REVIEW OF THE FINANCIAL DEVELOPMENT OF THE SCHEME

The audited financial statements, including the explanatory notes on pages 14 to 23, summarise the transactions of the Scheme during the year ended 31 March 2015.

The fund account shows income to the Scheme and outgoings in the year. The change in value of the fund is included in the assets held to meet the Scheme’s commitment to pay pension and other benefits to members already retired and yet to retire.

The net increase in funds in the year was £108.3m (2014: decrease £7.6m) which includes net returns on investment of £122.3m (2014: £2.7m) and contributions of £12.8m (2014: £14.3m). The Scheme paid retirement and other benefits of £25.4m (2014: £23.6m).

The total administrative expenses incurred during the year in relation to the Scheme were £1.6m (2014: £1.2m) as detailed in Note 8.

INVESTMENTS

The Scheme’s investments are made in accordance with The Occupational Pension Schemes (Investment) Regulations 2005. The Trustee has produced a Statement of Investment Principles for each section of the Scheme in accordance with Section 35 of the Pensions Act. Copies of these are available from the Secretary. At the end of the year, the asset allocation for some sections of the Scheme differed from the strategic allocation. In practice, for the actual investments held for a given Section at any time and decisions around the timing of any de-risking, the Trustee will take decisions having consulted the Section’s sponsoring employers and taken investment advice. Following any changes being agreed, the Trustee ensures that the Statements of Investment Principles is updated in due course to reflect the changes.

The Scheme’s investments were managed during the year by six firms of independent professional investment managers, State Street Global Advisors Limited, Ruffer LLP, Standard Life Investments Ltd, Barings Asset Management Ltd (now removed), Ashmore Group plc and Muzinich & Company Inc. Details on their performance is provided later in this Report.

WATER COMPANIES PENSION SCHEME TRUSTEE’S REPORT

4

On 20 May 2015, the Trustee appointed BMO Global Asset Management, a trading name of F&C Management Limited, to manage a Liability Driven Investment (“LDI”) fund and Sterling Liquidity fund. The rationale for investing in this portfolio is to protect the Scheme’s funding position from worsening as a result of adverse movements in long term interest rates or inflation expectations, as well as ensuring that this protection is being implemented in a cost-effective way.

These firms were appointed by the Trustee and have full responsibility for day to day decisions within the guidelines set by an advisory Investment Panel to which all Directors belong. All firms are regulated under the Financial Services and Markets Act 2000 and none has any connection with the member companies, the Trustee Company or Directors.

STOCK LENDING

There was no direct stock lending by the Scheme during the year. The Trustee expressly prohibits arrangements of this kind.

ACTUARIAL VALUATION

The Scheme comprised eight Sections during the year. As at the accounting date, the last completed actuarial valuations in respect of the Scheme as a whole were carried out by Richard Murphy of Lane Clark & Peacock as at 31 March 2011. A further valuation was carried out in respect of the Bristol Water plc Section as at 31 March 2013.

A subsequent formal valuation of the whole Scheme was carried out as at 31 March 2014 and finalised in May and June 2015.

The 2011, 2013 and 2014 valuations were carried out in accordance with the new scheme funding framework provided under Part 3 of the Pensions Act 2004 and the Occupational Pension Schemes (Scheme Funding) Regulations 2005.

For each Section of the Scheme the Trustee, in consultation with the sponsoring employer of each Section, has established recovery plans to achieve full funding of the technical provisions. Schedules of contributions, which have been certified by the Scheme Actuary, set out the level of employee and employer contributions that are due to the Scheme.

As part of the formal valuations carried out as at 31 March 2014, revised contribution rates have been agreed by all employers with effect from 1 April 2015. The actuarial certification of the calculation of technical provisions for each Section and the certification of each schedule of contributions are included in the appendices to this report.

The next formal valuation of the Scheme is due to be carried out as at 31 March 2017.

SPECIAL MEMBERS

Following the removal of compulsory entry requirements to the Scheme in September 1988, a new category of membership was established. This facilitated the provision of a lump sum death-in-service benefit (at a level to be determined by the relevant participating employer) for an employee who would not be a member of the Scheme by virtue of his/her election to opt out of, or not to join, the Scheme or who, for some reason, would not be eligible to join the Scheme. Such members have been identified in the analysis of the Scheme’s membership as Special Members.

WATER COMPANIES PENSION SCHEME INVESTMENT REPORT Year ended 31 March 2015

6

INVESTMENT REVIEW

During the year the Scheme’s investments were managed by six professional investment management firms: State Street Global Advisors Limited, Ruffer LLP, Standard Life Investments Ltd, Barings Asset Management Ltd (now removed), Ashmore Group plc and Muzinich & Co. Ltd. State Street manages two equity portfolios, one for UK equities and one for overseas equities, in addition State Street also manages two portfolios of index-linked gilts, one all stocks and one longer dated. All four portfolios are managed on a passive basis and in the past year have tracked their benchmark returns within reasonable tolerance ranges. The Scheme first invested with Standard Life and Ruffer on 20 December 2010, appointing these managers for “diversified growth” mandates (ie portfolios investing in a variety of assets, targeting an absolute return). The Trustee compares the Standard Life diversified growth fund (called the GARS Fund) to its target, which is to return 5% pa above cash returns (as represented by six month £ LIBOR), rather than to its cash benchmark. Since Ruffer does not quote a target or benchmark return, the Trustee compares Ruffer’s returns to the target of the Standard Life GARS Fund. Given that both Standard Life’s and Ruffer’s portfolios are managed under a similar (diversified growth) mandate, the Trustee believes that it is reasonable to use the same target for comparison. Since inception to 31 March 2015, Standard Life has returned 7.3% pa against its performance target of 5.9% pa, whilst Ruffer returned 6.9% pa over the same period. The Scheme invested in Barings’ Dynamic Emerging Markets Fund on 7 November 2012. Following senior personnel departures at Barings in August 2014, the Trustees redeemed the Scheme’s investment with the manager and invested the proceeds in Ashmore’s SICAV 3 Multi Strategy Fund (an emerging market multi asset fund) on 10 December 2014. In its first full quarter, Ashmore returned 0.7% against a benchmark return of 7.0%. The Scheme invested in Muzinich’s High Yield Bond Fund on 26 November 2012. Since inception to 31 March 2015, Muzinich has returned 7.9% pa against a benchmark return of 8.1% pa. The table on page 7 shows the results delivered by the current investment managers over one, three and five year periods ended 31 March 2015, compared with the appropriate benchmarks. Unless otherwise stated, all portfolio returns are shown before the deduction of investment manager fees.

WATER COMPANIES PENSION SCHEME INVESTMENT REPORT Year ended 31 March 2015

7

1 year (% pa)

3 years (% pa)

5 years (% pa)

Overall Scheme 20.3% 10.7% 10.1%

Benchmark 20.0% 10.5% 9.8%

Relative 0.3% 0.2% 0.3%

SSgA UK equities 6.7% 10.7% 8.4%

Benchmark 6.6% 10.6% 8.3%

Relative 0.1% 0.1% 0.1%

SSgA Overseas equities 17.2% 16.0% 10.5%

Benchmark 17.3% 16.0% 10.4%

Relative -0.1% 0.0% 0.1%

SSgA all-stocks index-linked gilts 18.7% 8.0% 9.7%

Benchmark 18.6% 7.9% 9.6%

Relative 0.1% 0.1% 0.1%

SSgA long-dated index-linked gilts 28.2% 11.6% 12.7%

Benchmark 28.1% 11.6% 12.6%

Relative 0.1% 0.0% 0.1%

Standard Life GARS Fund 10.9% 7.3% n/a

Target 5.7% 5.8% n/a

Relative 5.2% 1.5% n/a

Ruffer Absolute Return portfolio 12.1% 8.6% n/a

Target 5.7% 5.8% n/a

Relative 6.4% 2.8% n/a

Ashmore Multi Strategy Fund n/a n/a n/a

Target n/a n/a n/a

Relative n/a n/a n/a

Muzinich High Yield Bonds 2.5% n/a n/a

Target 3.6% n/a n/a

Relative -1.1% n/a n/a

Figures are subject to rounding. The Scheme appointed Ashmore in December 2015 and therefore longer term performance is not available.

WATER COMPANIES PENSION SCHEME COMPLIANCE STATEMENT Year ended 31 March 2015

8

There were no changes to the rules of the Scheme during the year. A Deed was completed after the year end to effect the closure of the South Staffordshire Water plc Section to future accrual from 1 April 2015.

CHANGES TO SCHEME RULES

In accordance with the Pensions Act 1995, the Trustee has in place an internal disputes resolution procedure and procedures for monitoring payments of contributions to the Scheme.

TAX STATUS OF THE SCHEME

The Scheme is registered under the Finance Act 2004. To the Trustee’s knowledge, there is no reason why the tax status should be prejudiced.

PENSION INCREASES

In April 2014 Scheme pensions in payment in excess of Guaranteed Minimum Pensions were increased in accordance with the Pensions Increase (Review) Order 2008 as were deferred pensions and lump sums of members who have left the Scheme with an entitlement to benefits at normal retirement date. The general annual increases paid were 2.7%.

CALCULATION OF TRANSFER VALUES

Individual transfer values paid during the year were calculated and verified in the manner required by Regulation 3 of the Occupational Pension Schemes (Transfer Values) Regulations 1985, as amended. The calculations did not take account of any discretionary benefits.

CUSTODIAL ARRANGEMENTS

In addition the investment managers, State Street Global Advisors Limited, Standard Life Investments Limited, Ruffer LLP and Barings Asset Management Ltd publish internal controls reports in accordance guidance set out by The Institute of Chartered Accountants in England and Wales or The Auditing Standards Board of the American Institute of Certified Public Accountants.

Ernst & Young LLP issued a unqualified opinion in respect of the ISAE 3402 report for State Street Global Advisors Limited for the year ended 31 March 2015.

The Standard Life GARS Fund managed by Standard Life Investments Limited is an insurance policy and as such, does not have a custodian. PricewaterhouseCoopers LLP issued an unqualified opinion in respect of the AAF 01/06 report for Standard Life Investments Limited for the year ended 30 September 2014.

Investments managed by Ruffer LLP are held in a pooled nominee account of RBC Investor Services Trust. Ernst & Young LLP issued an unqualified opinion in respect of the AAF 01/06 report for Ruffer LLP for the year ended 31 March 2014.

Investments managed by the Ashmore Investment Management Limited are held in a pooled nominee account for which Northern Trust acts as custodian and administrator. KPMG have issued an unqualified opinion in respect of the ISAE 3402 and SSAE 16 report for Ashmore Investment Management Limited for the year ended 30 June 2014.

Muzunich & Co., Inc. do not publish an internal controls report in accordance with the guidance set out by The Institute of Chartered Accountants in England and Wales or The Auditing Standards Board of the American Institute of Certified Public Accountants. They have however published a monitoring report on the firm’s compliance with the Investment Advisers Act of 1940 for the year to 1 July 2014 which was prepared by IMS Consulting US LLC (IMS). The conclusion from this report was that IMS found no significant gaps in the portfolio management and trading practices of Muzunich & Co. that would expose it to regulatory sanction.

WATER COMPANIES PENSION SCHEME DETAILS OF EMPLOYER COMPANIES Year ended 31 March 2015

9

During the year ended 31 March 2015, the following were designated employers:

1. Bristol Water plc 2. Cambridge Water PLC 3. Dee Valley Water plc 4. Anglian Water Services Limited, trading as Hartlepool Water 5. HomeServe plc 6. South Staffordshire Water PLC 7. Sutton & East Surrey Water plc 8. Water UK

The actuarial certification of the calculation of technical provisions for each sub-fund and the certification of each schedule of contributions are included in the appendices to the Annual Report.

WATER COMPANIES PENSION SCHEME STATEMENT OF TRUSTEE’S RESPONSIBILITIES

10

The financial statements are the responsibility of the Trustee. Pension scheme regulations require the Trustee to make available to Scheme members, beneficiaries and certain other parties, audited financial statements for each Scheme year which:

show a true and fair view of the financial transactions of the Scheme during the Scheme year and of the amount and disposition at the end of that year of the assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Scheme year, in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice); and

contain the information specified in the Schedule to the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice, “Financial Reports of Pension Schemes (Revised May 2007)”.

The Trustee has supervised the preparation of the financial statements and has agreed suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis.

The Trustee is also responsible for making available certain other information about the Scheme in the form of an Annual Report.

The Trustee is responsible under pensions legislation for ensuring that there are prepared, maintained and from time to time revised schedules of contributions showing the rates of contributions payable towards the Scheme by or on behalf of the employers and the active members of the Scheme and the dates on or before which such contributions are to be paid. The Trustee is 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 employers in accordance with the schedules of contributions. Where breaches of the schedules occur, the Trustee is required by the Pensions Acts 1995 and 2004 to consider making reports to the Pensions Regulator and members.

The Trustee has a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to it to safeguard the assets of the Scheme and to prevent and detect fraud and other irregularities, including maintenance of an appropriate system of internal control.

WATER COMPANIES PENSION SCHEME FUND ACCOUNT Year ended 31 March 2015

12

Note 2015

£’000 2014

£’000

Contributions and benefits

Contributions 2 12,762 14,291 Other income 3

- 6 Transfer in 4

- 8

12,762 14,305

Benefits 5 24,293 22,867

Leavers 6 1,144 710

Other payments 7 112 107

Administrative expenses 8 1,182 892

26,731 24,576

Net withdrawals from dealings with members

(13,969) (10,271)

Returns on investments

Investment income 10 368 537 Change in market value of investments 11 122,373 2,491 Investment management expenses 8 (464) (331)

Net returns on investments 122,277 2,697

Net increase / (decrease) in the fund during the year

108,308

(7,574)

Net assets of the Scheme Brought forward 618,777 626,351

Carried forward 727,085 618,777

The notes on pages 14 to 23 form part of these financial statements.

WATER COMPANIES PENSION SCHEME NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2015

14

1. 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 the Statement of Recommended Practice, “Financial Reports of Pension Schemes (Revised May 2007)”.

The principal accounting policies, all of which have been applied consistently both this year and last year are described below.

Valuation of investments

Investments are stated at market value.

Securities quoted in the UK are valued at the last traded or bid price quotations in the Stock Exchange Daily Official List as at the accounting reference date.

Securities quoted overseas are valued at bid price or the last traded price, depending on the convention of the overseas stock exchanges on which they are traded translated at rates ruling as at the year end.

Investments held in pooled investment vehicles such as unit trusts and managed funds are valued at bid or single prices at the year end in accordance with the Statement of Recommended Practice.

Foreign currency translation

Assets and liabilities denominated in foreign currencies are translated at the rate ruling at the accounting reference date. Any surplus or deficit on exchange has been credited or charged to the fund account.

Contributions

Ordinary contributions relating to wages and salaries earned in the financial year are included on the accruals basis at rates agreed between the Trustee Company and the participating employers for the year and as recommended by the actuary. Additional contributions from the participating employers are accounted for when due.

Benefits

The Scheme provides defined benefit pension and lump sum benefits payable to members on their retirement or to a member’s dependants when he or she dies. Benefits payable represent all valid benefit claims in respect of the Scheme year.

Transfers to and from schemes

Individual transfer values from and to other pension arrangements are accounted for when received or paid.

Group transfers out to other schemes are accounted for as withdrawals from the effective date of transfer. All income and expenditure and investment gains arising after that date are not dealt with as movements in the net assets of the Scheme but are recognised as assets held for transfer.

Investment income

Investment income is recognised on the accruals basis. Dividends from quoted securities are accrued when quoted ex-dividend.

Life assurance

The Scheme pays regular contributions for term assurance to cover death-in-service benefits for Scheme members which are accounted for on an accruals basis. Claims by the Scheme against the insurance companies under these policies are included in “other income” and the related benefits in “death benefits”.

WATER COMPANIES PENSION SCHEME NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Year ended 31 March 2015

15

2. CONTRIBUTIONS

2015 £’000

2014 £’000

Contributions receivable from employers:

Normal 6,852 7,278 Augmentations

561 22

S75 Debts

- 233 Deficit funding

4,980 6,352

Contributions receivable from employees:

Normal

268 282 Additional voluntary 101 124

12,762 14,291

The employer contributions include £nil (2014: 233,000) to fund S75 Debts, £561,069 (2014: 21,618) to fund augmented benefits and £4,980,000 (2014: 6,352,480) from different companies to improve the funding levels of their respective sections. These latter payments are payable monthly up to and including March 2018 subject to the conditions set out in the agreement between the Trustee and the companies.

Members employed by Bristol Water plc, South Staffordshire Water PLC, Homeserve plc and Sutton & East Surrey have entered into an arrangement whereby they sacrificed part of their salaries in exchange for the employer paying their contributions. All normal contributions in respect of these members are thus classified as receivable from employers.

3. OTHER INCOME 2015

£’000 2014

£’000 Insured benefits - 6

4. TRANSFER IN

2015 £’000

2014 £’000

Individual transfers in from other schemes - 8

5. BENEFITS

2015 £’000

2014 £’000

Pensions 19,665 18,707 Commutations and lump sum retirement benefits 4,618 4,127 Lump sum death benefits 10 33

24,293 22,867


16

6. LEAVERS

2015 £’000

2014 £’000

Individual transfers to other schemes 1,144 710

7. OTHER PAYMENTS

2015 £’000

2014 £’000

Premiums for term assurance policies 112 107

8. ADMINISTRATIVE EXPENSES

(A) FEES AND EXPENSES PAID BY THE SCHEME

2015 £’000

2014 £’000

The following fees were borne by participating employers’ sub-funds:

Legal 112 118 Actuarial 728 432 Trustee Company administration and accounting 45 45

885 595 Equiniti Paymaster administration fees 297 297

1,182 892 Investment managers’ fees for administration,

management and custody

464

331

1,646 1,223

(B) TOTAL FEES AND EXPENSES

In addition to those disclosed above, some of the costs of the Scheme, including PPF levies, are paid for directly by employers. The auditor’s fees are paid by the Water Company (Pension Fund) Trustee Company.


17

9. SUB-FUNDS AND UNITISATION

The value of the sub-fund of each designated employer has been determined on an agreed unitised basis from 1 August 1990. At that date, each sub-fund was allocated units, with an initial value of £1, according to the value of each sub-fund at 31 July 1990. Since then units have been purchased or sold on a monthly basis on behalf of each sub-fund according to the net non-investment income attributable to each sub-fund for the month. The value of units will fluctuate according to the investment return relating to the assets which they represent. The system incorporates other adjustments to reflect transaction costs and the timing of non-investment income.

Each designated employer has received monthly statements summarising the transactions made on behalf of its sub-fund and the resulting number and value of units attributable to that sub-fund.

The statement below indicates the total value of units held by each sub-fund at 31 March 2015, together with the net current assets or liabilities attributable to each sub-fund which are excluded from the unitisation system.

Other

Alternative Emerging

Market Passive

UK Equities

Passive Overseas Equities

Diversified Growth

Passive Index

Linked Gilts

Passive Longer

Dated Index Linked Gilts

Cash

Total unitisation fund value 31 March

2015

Net assets/ (liabilities)

not included in

unitisation

Net assets

£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Bristol Water plc 3,718 3,372 4,038 6,007 6,554 53,418 133,779 120 211,006 (156) 210,850

Cambridge Water PLC 1,601 1,452 3,553 5,086 2,798 - 33,071 (10) 47,551 (105) 47,446

Dee Valley Water plc 3,015 2,734 7,255 10,106 5,225 - 32,930 (24) 61,241 (269) 60,972

Anglian Water Services Limited, trading as Hartlepool Water

520 471 1,541 2,025 916 - 19,024 17 24,514 (25) 24,489

Homeserve plc 1,870 1,697 5,322 7,405 3,309 - 8,442 23 28,068 58 28,126

South Staffordshire Water PLC 15,589 14,138 29,209 42,762 28,174 - 92,675 (33) 222,514 (84) 222,430

Sutton & East Surrey Water plc 5,124 4,647 6,276 7,591 17,614 - 70,404 260 111,916 (218) 111,698

Water UK (including BETWI) - - - - - 14,978 - 4,730 19,708 (78) 19,630

31,437 28,511 57,194 80,982 64,590 68,396 390,325 5,083 726,518 (877) 725,641

AVC investments 1,444

727,085


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10. INVESTMENT INCOME

2015 £’000

2014 £’000

Dividends from UK equities 73 174 Dividends from overseas equities 185 241 Income from UK Index-linked bonds 41 42 Income from overseas Index-linked bonds 46 57 Income from pooled investment vehicles 8 10 Interest on cash deposits 2 1 Currency movements - 1 Annuity income 13 11

Total investment income 368 537

Most of the pooled investment vehicles do not distribute income. Income arising on the underlying assets is reinvested to enhance unit values.


19

11. INVESTMENTS Market value Market value 1 April 2014 Purchases at

cost Proceeds of

sales Change in

market value

31 March 2015

£’000 % £’000 £’000 £’000 £’000 % Equities:

- UK quoted

2,505

0.41

486

(1,783)

(99)

1,109

0.15

- Overseas quoted 8,294 1.35 4,161 (4,917) 1,835 9,373 1.30 Fixed Interest - Corporate Bonds 30,849 5.01 153 - 435 31,437 4.37 Index-linked: - UK 5,266 0.85 1,396 - 936 7,598 1.06 - Overseas 4,385 0.71 4,836 (5,719) 722 4,224 0.59 Pooled investment vehicles: - Unit trusts 56,567 9.18 28,319 (28,106) 4,833 61,613 8.56 - Managed funds 505,832 82.07 40,620 (59,176) 113,638 600,914 83.48 Derivatives: - Forward exchange 20 0.00 35,884 (36,180) 36 (240) -0.03

613,718 99.58 115,855 (135,881) 122,336 716,028 99.48

Cash deposits 2,631 0.42 3,795 0.53

Total excluding AVC Investments

616,349

100.00

719,823

100.00

Income receivable & tax recoverable

85

84

AVC Investments 1,369 1,444

617,803 721,351


20

11. INVESTMENTS (CONTINUED)

Transaction costs are included in the cost of purchases and sale proceeds. Transaction costs include costs charged directly to the Scheme such as fees, commissions, stamp duty and other fees. Transaction costs incurred during the year amounted to £9,517 (2014: £14,539). In addition, indirect costs are incurred through bid/offer spread on investments within pooled investment vehicles. The amount of indirect costs is not separately provided to the Scheme.

The change in market value of investments during the year comprises all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year.

Change in market value:

2015 £’000

2014 £’000

Movement in portfolio value 122,336 2,433 Movement in AVC value 37 58

122,373 2,491

All derivatives are held and managed by investment managers on a discretionary basis. The Scheme does not directly enter into derivative contracts other than through the investment manager mandates.

The investment managers are regulated by the FCA and none have any connection with the participating employers. The aggregate amount of investments, excluding AVC investments, held by each manager is shown on page 21.


21

2015 £’000

2015 %

2014 £’000

2014 %

State Street Global Advisors Limited – managed funds UK equities 56,644 7.8 59,479 9.7 Europe (ex UK) equities 25,650 3.5 24,501 4.0 Japan equities 12,597 1.8 11,374 1.8 Asia Pacific Basin (ex Japan) equities 9,279 1.3 8,611 1.4 Emerging Markets equities 7,026 1.0 6,059 1.0 North America equities 25,770 3.6 25,277 4.1 Index-linked 68,342 9.5 48,943 7.9 Over 15 year index-linked 390,060 54.2

316,403 51.3

595,368 82.7 500,647 81.2

Ruffer LLP UK equities 1,109 - 2,505 0.4 North America equities 2,262 0.3 2,984 0.5 Europe (ex UK) equities 1,923 0.3 1,868 0.3 Japan equities 4,570 0.6 3,442 0.6 Asia (ex Japan) equities 618 0.1 - - UK index-linked 7,598 1.1 5,266 0.9 Non-Sterling index-linked 4,224 0.6 4,386 0.7 Europe equity managed funds 322 - 521 0.1 Japan equity managed funds 1,108 0.2 893 0.1 South East Asia equity managed funds 1,106 0.2 641 0.1 Global unit trusts 350 - 379 0.1 Gold & precious metals managed funds 3,009 0.5 3,129 0.5 Forward foreign exchange (240) - 20 - Cash deposits 3,795 0.5 2,631 0.4

31,754 4.4 28,665 4.7

Standard Life investments Ltd Global absolute returns strategies fund 32,753 4.6 29,748 4.8 Barings Asset Management Ltd

Baring Dynamic emerging market fund - - 26,440 4.3 Muzinich & Co Inc

Muzinich transatlantic yield global high yield bond fund 31,437 4.3 30,849 5.0 Ashmore Ashmore multi strategy fund 28,511 4.0 - -

Total investments excluding AVCs 719,823 100 616,349 100

No individual investment in equities comprised more than 5% of the Scheme’s net assets. All of the pooled investment vehicles are operated by companies registered in the United Kingdom.


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11. INVESTMENTS (continued)

AVC Investments

The Trustee holds assets invested separately from the main Scheme in the form of bank accounts and insurance policies securing additional benefits on a money purchase basis for those members electing to pay cash accumulation additional voluntary contributions. Members participating in these arrangements each receive an annual statement made up to 31 March confirming the amounts held to their account and the movements in the year.

Market value 1 April 2014

Purchases at cost

Proceeds of sales

Change in market

value

Market value 31 March 2015

£’000 % £’000 £’000 £’000 £’000 %

Bank of Ireland 36 2.6 1 (37) - - 0.0 Prudential Assurance

1,333 97.4 130 (56) 37 1,444 100.0

1,369 100.0 131 (93) 37 1,444 100.0

12. CURRENT ASSETS

2015 £’000

2014 £’000

Cash balances 5,083 634 Cash in transit from investment managers 1,528 629 Life assurance premiums 2 -

6,613 1263 Contributions due from participating

employers in respect of:

Employers 851 996 Members 19 21 AVCs 7 7

7,490 2,287

Contributions outstanding at the year end were received in accordance with the dates set out in the schedules of contributions.

.


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13. CURRENT LIABILITIES

2015 £’000

2014 £’000

Pensions

987 938

Retirement benefits

168 94 Life assurance premiums

- 28

Administration fees

25 25 Actuarial fees

309 79

Legal fees

41 20 Investment management fees

226 129

1,756 1313

14. RELATED PARTY TRANSACTIONS AND EMPLOYER RELATED INVESTMENTS

The Scheme did not hold any employer related investments at any time during the year. There may be very small indirect holdings through pooled investment vehicles but the Directors are not able to quantify these.

Certain Directors of the trustee company are members of the Scheme and pay contributions and receive benefits in accordance with the rules of the Scheme.

Included in the current liabilities above is an amount of £349,330 owed to The Water Companies (Pension Fund) Trustee Company.


APPENDIX 1: ACTUARY’S CERTIFICATION OF TECHNICAL PROVISIONS BY SUB-FUND

1. Bristol Water plc

2. Cambridge Water PLC

3. Dee Valley Water plc

4. Anglian Water Services Limited, trading as Hartlepool Water

5. HomeServe plc

6. South Staffordshire Water PLC

7. Sutton & East Surrey Water plc

8. Water UK


APPENDIX 1: ACTUARY’S CERTIFICATION OF TECHNICAL PROVISIONS BY SUB-FUND


APPENDIX 2 CERTIFICATIONS OF SCHEDULES OF CONTRIBUTIONS BY SUB-FUND

1. Bristol Water plc

2. Cambridge Water PLC

3. Dee Valley Water plc

4. Anglian Water Services Limited, trading as Hartlepool Water

5. HomeServe plc

6. South Staffordshire Water PLC

7. Sutton & East Surrey Water plc

8. Water UK


APPENDIX 2 CERTIFICATIONS OF SCHEDULES OF CONTRIBUTIONS BY SUB-FUND

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