Dorset County Pension Fund Annual Employers Forum 1 December 2015 - PowerPoint PPT Presentation

Dorset County Pension Fund Annual Employers’ Forum 1 December 2015

Employers’ Forum 2015 - Agenda Richard Bates (Fund Administrator) – Welcome and economic background Nick Buckland (Head of Treasury and Pensions) – Update on the Fund’s investments Alison Hamilton (Barnett Waddingham) – Actuarial update Karen Gibson (Deputy Pensions Benefits Manager) – Administration update

Richard Bates Pension Fund Administrator Dorset County Pension Fund

Outline of the session • Economic update • National context / CSR announcement

Economic update - interest rates

Economic update - growth

Economic update - unemployment

Inflation - CPI

Economic update - debt

Economic update - spending/GDP

National context - what we know so far • Budget surplus to be achieved by 2019/20 • Departments asked to model 25% and 40% real terms cuts • Real-terms protection for health + £8bn above inflation by 2020/21 • MoD increase 0.5% each year – 2% of GDP • Education increase in line with pupil numbers (cash protection per pupil) • CSR published on 25 November alongside the Autumn Statement

National context - Departmental spending forecasts

Local Govt spending • The Local Government Departmental Expenditure Limit (LG DEL) will reduce from £11.5bn in 2015/16 to £5.4bn in 2019/20; a 56% real terms decrease. Revenue Support Grant is included within the LG DEL and will be phased out by 2019/20. • Locally financed expenditure is forecast to increase by £6.3bn from £28.8bn in 2015/16 to £35.1bn in 2019/20; a 13% real terms increase. £ billion Local Government DEL 11.5 9.6 7.4 6.1 5.4 Locally Financed Expenditure 28.8 29.0 31.5 33.6 35.1

National context - spending review timetable We are now being told the settlement will be “very late”…

Nick Buckland Head of Treasury and Pensions Dorset County Pension Fund

Fund update � Growth in asset values � Investment Strategy � Performance � Key issues for Pension Fund Committee � National Agenda

Asset values – Fund values at year end (£M)

Asset values � Fund values have increased more than 4 fold since 1996 � Doubled since 2009 (after Global Financial Crisis) � Values fallen since end of March 2015 � At 31 st October 2015 - £2.28 Billion

Investment strategy � Long term objective to generate returns matching growth in liabilities, short term to match benchmark � Equities main returns generator but diversify to reduce volatility � Liabilities are also a major source of volatility � Deficits can be closed in three ways: � Superior asset returns � Increased employer contributions � Lengthening recovery period

Investment strategy � No major changes to strategy this year � Review due post Actuarial Valuation (this time next year) � Activity this year � Replaced Global Equity managers � £500M transition due to complete mid December � Reviewed a number of manager arrangements � Most re-appointed for three years � One on “watch”

Asset Allocation – 31 st October 2015

Asset Allocation � Equity allocation lower than LA average � Allocation to Bonds and alternatives higher � Passive core with specialist active managers � Inflation risk specifically addressed (7/89 LGPS Funds do this) � 9 asset classes � 15 Fund managers (plus internal team) � Reviewed every quarter and formally every three years (minimum)

Fund performance

Fund performance � Fund has performed well since 2008-09 Global Financial Crisis � Fund specific benchmark has been testing � Benchmark is weighted average of asset allocation using index returns � Outperformed LA average over all periods � Best managers have been consistent – AXA Framlington (UK equities), Royal London (bonds) and CBREi (property) (as per last years slides)

Pension Fund Committee

Pension Fund Committee work � Busy year for Committee – background of uncertainty over future shape of LGPS � Created Local Pension Board � Role of The Pensions Regulator � Replaced Global Equity managers � Collecting award � National Agenda � Greater separation for Funds? � Pooling of Investments

Award winning � Dorset Fund named LGPS Fund of the Year 2015 � Engaged Investor Awards

Pension Fund Committee work � Busy year for Committee – background of uncertainty over future shape of LGPS � Created Local Pension Board � Role of The Pensions Regulator � Replaced Global Equity managers � Collecting award � National Agenda � Greater separation for Funds � Pooling of Investments

National Agenda • Restructure of LGPS – On-going for several years – Call for Evidence 2014 – Merger of Funds? – Five Funds? – Passive only investments? – LGPS to fund National Infrastructure? • Chancellor’s July budget announcement • Subsequent announcement 25 November Autumn statement

National Agenda • July budget statement – Small print of budget book “ The government will work with Local Government Pension Scheme administering authorities to ensure that they pool investments to significantly reduce costs, while maintaining overall investment performance. The government will invite local authorities to come forward with their own proposals to meet common criteria for delivering savings.” – Consultation to set out detailed criteria, revised Investment Regulations and Backstop Legislation, due later in year.

South West Funds • Dorset part of South West Investment Officers group – Dorset, Avon, Cornwall, Devon, Gloucestershire, Somerset, Wiltshire & Environment Agency. • Met in August to discuss pooling of investments • Quickly agreed proposals “in principle” • Worked with advisers to assess – Cost/benefits – Meeting Government Requirements • “Like minded” and “Like sized” • “Project Brunel”

South West Funds (Project Brunel) • Early proposals discussed with Committees • Agreement “in principle” • Well advanced proposals • Keen to learn from London LGPS funds • Open to potential structures • Perhaps a bit small (circa £19 Billion) – Discussing with 2/3 additional Funds

Pooling of Investments • 25 November – Autumn Statement • Consultation issued • Criteria – Governance – Cost/savings – Size (circa £25 Billion) – Infrastructure • Response by 19 February • South West proposals still look sound

Pooling of Investments • Plenty of work still to do • Will take a number of years – Government acknowledge this • Aim to improve (or not reduce) Investment returns • Reduce costs • Improve resilience, ensure Funds have robust teams • Local accountability remains – Asset allocation stays with local Funds – Up to 90% of return derived from asset allocation • Watch this space…

Nick Buckland Head of Treasury and Pensions Dorset County Pension Fund

UK - Actuarial Advisory Firm of the Year UK - Pensions Advisor of the Year Dorset County Pension Fund Employer forum – actuarial update Alison Hamilton FFA, Partner 1 December 2015

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