2002/2003

Report &Accounts2002/2003

Contents

CHAIR’S INTRODUCTION 2

MANAGEMENT STRUCTURE 4

INVESTMENT REPORT 5

FINANCIAL STATEMENTS 9

STATEMENT OF RESPONSIBILITIES 14

AUDIT REPORT 15

SCHEME ADMINISTRATION 16

CONSULTING ACTUARY’S STATEMENT 20

APPENDIX A EMPLOYER MEMBERSHIP 21

APPENDIX B FUND BACKGROUND 22

APPENDIX C PENSIONS COMMITTEE ITEMS 23

APPENDIX D INFORMATION CONTACTS 24

Page No.

Chair’s Introduction

The Overall Aim of the Fund

The principal aim of the Fund remains to provide secure pensions, effectively and efficiently administered at the lowestcost to contributing employers. This requires the Fund to strike a balance between achieving the most from itsinvestments and the need to exercise prudence and caution in considering its future liability profile. The PensionsCommittee with the help of its various professional advisers, reviews the Fund's investments, at regular intervals, toensure that they remain appropriate.

Investment Performance of the Fund

Another disappointing year in financial markets has had less impact on the assets ofthe Fund than might have been expected. The Fund's total return of -14.3% for theyear, although negative, compares favourably with both our Benchmark return (-18.3%) and the WM Local Authority Pension Fund Universe (-19.5%). The Fund hasbeen ranked amongst the top 10% of Local Authority Funds over 1, 3, 5 and 10 yearperiods respectively based on its investment returns.

The outperformance for the year was significantly attributable to asset allocationaided by overweight positions in property and cash.

Major stock markets fell sharply during the year, generating negative investmentreturns for the third year in succession, and were extremely volatile. This has againadversely affected the Fund's performance in the UK (-30.6%), North America (-32.0%), Europe (-33.4%),and Japan (-30.4%). Markets were depressed by anumber of factors including weakening economic fundamentals, concerns aboutaccounting irregularities and fraud (particularly in US), disappointing corporateearnings growth and geopolitical risks. However, property performed well andcontributed positively to our total return for the year, as did the fixed interest portfolio.

Despite the three successive years of negative returns, the ten year return of theFund at 7.1%, remains well ahead of both average earnings and inflation.

Councillor Sue Brown

As the new Chair of the Pensions Committee, it is my

pleasure to introduce the Merseyside Pension Fund Annual

Report for the year ended 31 March 2003. The aim of the

report is to highlight the important issues affecting the Fund

over the last twelve months as well as providing more

general information regarding the Pension Scheme.

2

The Fund has

been ranked

amongst the top

10% of Local

Authority Funds

over 1,3,5 and 10

year periods.

“

“

Chair’s Introduction

3

Actuarial Valuation

At the last triennial actuarial valuation, based on data as at 31 March 2001, the overall funding level at 94% wasunchanged from the previous full valuation. The improvement in mortality statistics and consequent increased lifeexpectancy of members of the Fund was one of the reasons for the lack of improvement in the overall funding position.

An interim review as at 31 March 2002, was completed, which confirmed that the funding level of the Fund, as a whole,had fallen to 88%. A further interim review took place as at 31 March 2003, which indicated that the overall funding levelhad further fallen to 70%. This coincided with world stockmarkets being close to their lowest levels in recent times, fromwhich a strong recovery is reasonably anticipated. Recent legislative proposals are further expected to contain theFund’s potential liabilities.

Communication with Fund Members

The current active membership of the Fund stands at approximately 48,000 with just over 36,000 in receipt of pensions.

The annual employers’ conference was again well attended in November 2002 and featured speakers from the Office ofthe Deputy Prime Minister, the Fund’s Actuary - Mercer Human Resource Consultants and officers from the Fund. Topicscovered included updates on the Stocktake Exercise of the Scheme.

Past Changes and the Future

The past year has again been a challenging one for the pension administration team. It has continued to deal with theadmission of private contractors following the contracting out of services as a result of Best Value and other initiatives. Ithas also continued to provide information and support to members affected by the continuing problems with theEquitable Life Assurance Society With Profits Fund. The Fund also has carried out a review of its AVC provision andafter the year-end appointed Prudential Assurance as an additional AVC provider to work alongside Standard Life.

During the past year the Government has been undertaking a Stocktake into the operation of the LGPS and this hasinvolved a major consultation exercise with the various stakeholder groups. To date two discussion papers have beenissued dealing with – Simplification of the Regulations and the suitability of the Retirement Benefit Package. Two furtherpapers are still awaited on Costs and Sustainability and Ensuring Efficient Administration and Standards of Service tomembers. A Pensions Green Paper and Inland Revenue discussion paper have also been issued with proposalsintended to improve the protection available to members of pension schemes, simplify the provision of pensions foremployers and to encourage people to work longer in response to the increasing costs of pension provision. Specificallythe Green Paper proposes the abolition of the existing “85 year rule” for public sector schemes, which allows membersto receive unreduced benefits if they retire between 60 and 65 but with protection for past service of existing members.The Inland Revenue also proposes increasing the minimum age for early retirement (other than on ill health grounds)from the present 50 to 55. This change is expected to be introduced by 2010.

As ever, the continued success of Merseyside Pension Fund (MPF) depends on the combined efforts of all concernedwith the Fund. In conclusion, I should like to thank the Committee, the financial advisers, and all of MPF’s Investmentand Administrative staff for their considerable work. Particular thanks are due to Legal and General InvestmentManagement Ltd for acting as managers to the Fund during transition.

Management Structure (at 31 March 2003)

1 PENSION FUND MANAGEMENT COMMITTEE

Voting Members

Chairman:

Cllr G C J Watt Wirral

Cllr S A Brown Wirral

Cllr I O Coates Wirral Cllr C O’Hare Knowsley

Cllr G Davies Wirral Cllr C Curry Liverpool

Cllr T Harney Wirral Cllr P Parry Sefton

Cllr A E R Jones Wirral Cllr A Smith St Helens

Cllr R K Moon Wirral Mr T Jones (LJMU) Non district employer representative

Cllr W D Nock Wirral

Cllr A C Robinson Wirral

Cllr L F Spencer Wirral

Employee Representatives

Mr D Jenkins (Unison)

Mr A Cusack (TGWU)

Officers of the Fund

Ian Coleman Director of Finance Peter Mawdsley Principal Pensions Officer

David Smith Deputy Director of Finance Johanna Miller Borough Solicitor & Secretary

John Parry Assistant Director of Finance Colin Hughes Assistant Borough Solicitor

2 ADVISERS TO INVESTMENT ADVISORY PANEL

Director of Finance J P Morgan Fleming Asset Management

Assistant Director of Finance Mercer Investment Consulting

3 OTHERS

Auditor Audit Commission

Bankers The Royal Bank of Scotland plc

Consulting Actuary Mercer HR Consulting

Custodian of Assets The Bank of New York

Ethical Advisers Pensions and Investment Research Consultants Ltd

Property Advisers Edmund Kirby

Savills Fund Management

Performance Measurement The WM Company

Solicitor Wirral MBC

Additional Voluntary Contributions Providers Equitable Life Assurance Society

Standard Life

4

Investment Report for the year ended 31 March 2003

5

Management of the Fund

The overall responsibility for the management of the Fund rests with the PensionsCommittee, now chaired by Councillor Brown (who replaced Geoffrey Watt in May 2003).In 2002/03 the Committee comprised of Councillors from the Wirral Labour group (6),Conservatives (2), Liberal Democrats (2), representatives of the four other DistrictAuthorities (Liverpool, St.Helens, Knowsley and Sefton), an independent representativefrom the other employers, employee representatives (2), the Director of Finance andother officers of the Fund. The Committee meets at least three times a year to review theadministrative and investment issues affecting the Fund. The Committee also ensuresthat the management of the Fund’s assets falls within the requirements of the LocalGovernment Pension Scheme (Management and Investment of Funds) Regulations1998. These regulations require the Fund to have regard to both diversification andsuitability of investments and stipulate the requirement to take proper advice whenmaking investment decisions.

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 Fleming Asset Management - and members ofthe in-house investment team.

During the financial year ended 31 March 2003, assets other than those relating to property, venture funds and cash hadbeen placed with transitional managers (Legal and General Investment Management Ltd.) on a care and maintenancebasis. Following transition, part of the UK and European portfolios continue to be managed internally with global equitiesand bonds managed externally. Internal fund managers report to the Director of Finance through regular Fund OperatingGroup meetings and follow laid down compliance procedures. Since the year end external fund managers have beengiven specific benchmarks against which performance will be measured and monitored quarterly at meetings of theInvestment Advisory Panel.

The Fund’s property portfolio is managed by Savills Fund Management and Edmund Kirby, who both reported to theAssistant Director of Finance - Pension Fund. The day-to-day management of the properties is handled by CB RichardEllis, with an independent annual valuation of the portfolio being carried out by Colliers Erdman Lewis.

Figure 1.

Portfolio Distribution (Market Value at 31 March)

● 2003

● 2002

% o

fto

tal a

sset

UK E

quitie

sUS

Equ

ities

Euro

pean

Equ

ities

Japa

nese

Equ

ities

Far E

ast E

quitie

s

Emer

ging

Mar

ket E

quitie

s

Gilts

Index

Link

edCa

sh/O

ther

Vent

ure

Capit

al

Prop

erty

John ParryAssistant Director of Finance


Investment Strategy

The Fund is managed within the rules and guidelines set out in the 1998 Regulations(which consolidated and simplified previous regulations). These regulations setparameters for the types and limits that the Fund can invest in certain asset classes.

The investment strategy of the Fund, developed by the Investment Advisory Panel, hasbeen to maximise returns over the medium to long term whilst having regard to its liabilitycommitments. Early in 1999 an asset / liability study was carried out by the Fund’sconsulting actuary. This study resulted in some changes to the asset benchmark for theFund, moving away from the typical local authority asset structure previously adopted, toa more bespoke structure better suited to matching the Fund’s maturity and liabilityprofile. The requirement to maintain a balanced portfolio of assets across a diversifiedportfolio invested in a range of stocks and sectors, remains of paramount importance.The asset / liability relationship was reviewed by Mercer HR Consulting in 2002 and therecommendations have subsequently been implemented.

Corporate Governance

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 Myner's report oninstitutional investment on shareholder activism and is subject to periodic review to ensure that the Fund responds todevelopments in best practice.

The Fund is substantially compliant with the Myner’s principles on institutional investment. Where not fully compliantprocedures are under review. Further information is contained in the Statement of Investment Principles which isreviewed by the Pensions Committee in September each year. The current statement is available from the Fund office atPO Box 120, Castle Chambers, 43 Castle Street, Liverpool L69 2NW and covers:

Effective Decision MakingActivismAppropriate BenchmarksExpert Advice

The policy is reviewed each year to ensure that theFund remains in line with best practice.

The Fund’s composition is largely dictated by itsbespoke strategic benchmark, which is determinedby the Fund’s actuary. This strategic benchmark isthe main gauge against which investmentperformance is measured and is reviewedperiodically to ensure it continues to meet the liabilityprofile of the Fund.

The Fund’s tactical asset allocator is permitted toadjust the Fund’s exposure to individual assetclasses within predetermined tolerances. Suchadjustments are executed quarterly, when required.

The Fund’s actual composition at the beginning andend of the reporting period is depicted in Figure 1.

6

Explicit MandatesClear ObjectivesFocus on Asset Allocation

Performance MeasurementTransparencyRegular Reporting

% %

UK Equities 36

Overseas Equities 22

US 7European 9Japan 3Pacific 2Emerging Markets 1

Fixed Interest 26

UK Gilts 5Overseas Bonds 2UK Index Linked 14Corporate Bonds 5

Property 8

Venture Capital/Other Investments 5

Cash 3

TOTAL 100

StrategicBenchmark

Asset Class Detail

Strategic Asset Structure

Leyland OtterSenior Investment Manager


7

Largest Equity Holdings as at31 March 2003

Company Market Value Equity

£’000 %

1 BP 59,184 8.2

2 Vodafone 50,398 7.0

3 Glaxo Smithkline 45,188 6.3

4 HSBC 39,686 5.5

5 RB Scotland 27,968 3.9

6 Shell Transport 25,436 3.5

7 Astra Zeneca 23,727 3.3

8 HBOS 16,887 2.3

9 Barclays 16,425 2.3

10 Diageo 14,440 2.0

319,339 44.4

Largest Property Holdings as at31 March 2003

Property Market Value

£’000

1 Tunsgate Square, Guildford 21,1502 Cunard Building, Liverpool 19,5003 Middlemarch, Coventry 15,5004 Horns Road, Ilford 13,1505 Farnham Retail Park 12,8006 The Quadrant, Windsor 12,750

Figure 2.

Net Investment by Asset Class in year ended 31 March 2003

£ million

UK EquitiesUS Equities

European EquitiesJapanese Equities

Far East EquitiesEmerging Market Equities

GiltsOverseas Bonds

Index LinkedCash

Other InvestmentsProperty

200-20-40-60 40 60 80 100

The Fund’s net investment in individual asset classes over the period is depicted in Figure 2.

The top ten holdings represent 44.4% of the total Equity Portfolio


8

Comparative Returns for the Fund1 Year 5 Years 5 Years 10 Years

% % % %

Merseyside Pension Fund -14.3 -6.6 0.6 7.1Benchmark* -18.3 -9.1 -1.6 6.2RPI 3.1 2.2 2.3 2.6Average Earnings 3.5 3.6 4.1 4.1Ranking Against Peer Group 3 9 2 5

*The 1 Year and 3 Yearbenchmarks = MerseysidePension Fund bespoke

All other periods = UK LocalAuthority Peer Group

Review of Investment Performance

During the year to 31 March 2003 the Fund’s return was –14.3% compared to its bespoke benchmark of –18.3%. Theoutperformance of investment returns against benchmark for the fiscal year 2003 (albeit in negative terms) was largelydue to the Fund’s asset allocation over the period with overweight positions in property and cash.

Over the same period, the average return of all Local Authority Pension Funds based on the WM Local AuthorityUniverse of 87 funds posted a return of –19.5% and Merseyside Pension Fund was ranked in third place in terms of itsreturn on assets.

The background for investment markets over the year continued to be unfavourable with all the major global equitymarkets posting significant declines largely attributed to rising risks and uncertainties with respect to both thegeopolitical situation and the sluggish pace of the recovery. However, the first quarter ending March 2003 appears tohave marked a nadir for global financial markets and at the time of writing, all major world stock markets are currently inpositive territory on a calendar year-to-date basis.

The Fund subscribes to the WM Company performance measurement service which enables comparison of the Fund’sinvestment return with that of other Local Authority pension funds. In addition, the Fund’s performance within individualasset classes is measured against relevant index benchmarks as depicted in Figure 3.

Figure 3.

Prop

erty

-30

-20

-40

-10

0

10

20

Cash

/Oth

er

Over

seas

Bon

ds

UK E

quiti

es

US E

quiti

es

Euro

pean

Equ

ities

Japa

nese

Equ

ities

Far E

ast E

quiti

es

Emer

ging

Mar

ket E

quiti

es

Gilts

Inde

x Lin

ked

● Fund

● Benchmark

Total Return by Asset Class in year ended 31 March 2003

Tota

l Ret

urn

(%)

Financial Statements

9

FUND ACCOUNTFor the year ended 31 March 2003 Note 2003 2002

£’000 £’000

Contributions and Benefits

Contributions receivable 3 142,241 131,204

Transfers in 18,998 18,517

161,239 149,721

Benefits payable 4 150,313 149,027

Leavers 5 17,848 16,449

Administration Expenses 3,409 3,324

171,570 168,800

Net withdrawals from

dealings with members -10,331 -19,079

Return on Investments

Investment income 6 61,914 82,979

Change in market value of investments 7 -542,534 -120,066

Exchange 39 -81

Investment Management Expenses -566 -375

Net return on Investments -481,147 -37,543

Net decrease in the Fund during the year -491,478 -56,622

Net Assets of Fund at start of year 2,965,684 3,022,306

Net Assets of Fund at end of year 2,474,206 2,965,684

NET ASSETS STATEMENT AS AT 31 MARCH 2003

Note 2003 2002

£’000 £’000

Investments

Fixed Interest Securities 7 203,588 164,854

Index Linked Securities 360,768 334,917

Other Investments 56,363 66,574

Equities 718,950 1,602,897

Managed or Unitised Funds 669,190 359,209

Properties 261,475 268,200

Short Term Deposits 151,250 138,800

AVC’s 8,088 9,029

2,429,672 2,944,480

Other Assets and Liabilities 8 44,534 21,204

Net Assets of the Fund as at 31 March 2003 2,474,206 2,965,684


10

NOTES TO THE ACCOUNTS

1 GENERAL

Although 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.

2 ACCOUNTING POLICIES

● 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.

● Valuation of investments

Investments are stated at market value. For this purpose unlisted investments are included at manager's

valuation 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 2003.

● 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.

● Investment income

Interest on fixed interest stocks and on short term deposits has been accounted for on an accruals basis. Income

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

● Rental income

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.

● Contributions and benefits

Contributions, excluding additional voluntary contributions, are accounted for on an accruals basis. Benefits

payable represent the benefits paid during the financial year.

● Transfers to other schemes

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

Gerard MooreFinancial Controller


11

2003 2002

£’000 £’000

3 CONTRIBUTIONS RECEIVABLEEmployers

Normal 92,167 83,033

Early retirement funding 8,960 9,584

Employees

Normal 40,007 37,000

Additional Voluntary Contributions 1,107 1,587

142,241 131,204

relating to: Administering Authority 23,344 22,000

Scheduled Bodies 106,013 100,376

Admission Bodies 12,884 8,828

142,241 131,204

4 BENEFITS PAYABLEPensions 133,895 130,663

Lump sum retiring allowances 13,443 15,164

Lump sum death benefits 2,507 2,299

Relating to AVCs 468 901

150,313 149,027

relating to: Administering Authority 20,686 18,696

Scheduled Bodies 118,470 114,302

Admission Bodies 11,157 16,029

150,313 149,027

5 PAYMENTS TO AND ON ACCOUNT OF LEAVERSRefunds to members leaving service 375 382

Payment for members joining state scheme -99 230

Individual transfers to other schemes 16,953 15,651

Relating to AVCs 619 186

17,848 16,449

6 INVESTMENT INCOMEFixed interest securities 8,827 11,157

Index Linked securities 7,696 5,322

Dividends from equities, managed and unitised funds 21,894 42,720

Net rents from properties 17,457 17,868

Interest on deposits 5,947 5,865

Other 93 47

61,914 82,979

As at 31 March 2003, £90 million of stock was on loan to market makers, and this was covered by collateral (includingan appropriate margin) comprising cash and non cash totalling £91 million.


12

2003 2002£’000 £’000

Fixed Interest Securities*UK Fixed Interest 133,524 75,675UK Corporate Bonds 0 7,248Overseas Fixed Interest 70,064 81,931

203,588 164,854*Other than Corporate Bonds, all are public sector securities

Index Linked Securities 360,768 334,917

Equities

UK Quoted 678,769 1,123,697Overseas Quoted 40,181 479,200

718,950 1,602,897Managed* and Unitised Funds

UK managed funds 150,238 251,251Overseas managed funds 35,917 93,556Legal & General 463,517 0Property Unit trusts 19,518 14,402

669,190 359,209

Other Investments 56,363 66,574

*Unlisted Securities are included in Managed Funds at a market value of£84,246,000 (2002 - £93,148,000).

UK propertiesFreehold 223,405 217,410Leasehold 38,070 50,790

261,475 268,200

Short term Deposits 151,250 138,800

Additional Voluntary Contributions Investments

The Committee holds assets invested separately from the main Fund. The Scheme providers as at 31 March 2003 areEquitable Life and Standard Life. Members participating in this arrangement each receive an annual statement confirmingthe amounts held on their account and the movements in the year. The aggregate amount of AVC investments is as follows:

2003 2002£’000 £’000

Equitable Life 5,074 7,204Standard Life 3,014 1,825

8,088 9,029

7 INVESTMENTSMarket Value Purchases Sale Change in Market Value

31.3.02 at cost Proceeds Market value 31.3.03£’000 £’000 £’000 £’000 £’000

Fixed Interest Securities 164,854 78,770 16,080 -23,956 203,588

Index Linked Securities 334,917 29,413 29,441 25,879 360,768

Other 66,574 7,958 16,944 -1,225 56,363

Equities 1,602 897 171,888 643,420 -412,415 718,950

Managed & Unitised Funds 359,209 496,087 50,457 -135,649 669,190

Properties 268,200 1,026 13,811 6,060 261,475

Short Term Deposits 138,800 12,450 0 0 151,250

AVC Investments 9,029 1,379 1,092 -1,228 8,088

2,944,480 798,971 771,245 -542,534 2,429,672

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


13

8 CURRENT ASSETS AND LIABILITIES

2003 2002

£’000 £’000

Assets

Contributions due 13,019 11,861

Accrued and outstanding investment income 8,866 11,757

Due from stockbrokers 5,282 0

Cash at Bank 17,099 1,647

Sundries 5,567 3,710

49,833 28,975

Liabilities

Due to stockbrokers 0 1,920

Transfer values payable 1,395 1,232

Provisions 559 400

Miscellaneous 3,345 4,219

5,299 7,771

Total Other Assets and Liabilities 44,534 21,204

9 COMMITMENTS

Commitments for investments amounted to £68,390,000 at 31 March 2003.

10 RELATED PARTY TRANSACTIONS

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

authority to the Fund, which amount to £2,751,000 (2002 £2,322,000). Such charges principally relate to

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

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

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

11 SUMMARY OF MANAGERS’ PORTFOLIO VALUES

VALUES AT 31 MARCH 2003 (excluding AVC Assets)

£m %

Externally Managed

UBS 18 0.7

Lombard Odier 13 0.5

Legal & General 1,755 72.5

1,786 73.7

Internally Managed 636 26.3

2,422 100.0

Statement of Responsibilities

14

The Authority’s Responsibilities

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

● 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.

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

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 2003.

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

● Selected suitable accounting policies and then applied them consistently

● Made judgements and estimates that were reasonable and prudent

● 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 2003 and its

income and expenditure for the year then ended.

Director of Finance

17 September 2003

Ian ColemanDirector of Finance

Audit Report to Merseyside Pension Fund

15

I have audited the Pension Fund accounts, on pages 9 to 13, which have been prepared in accordance with the

accounting policies applicable to pension funds set out on page 10.

This report is made solely to Merseyside Pension Fund in accordance with Part II of the Audit Commission Act 1998 and

for no other purpose, as set out in paragraph 54 of the Statement of Responsibilities of Auditors and of Audited Bodies,

prepared by the Audit Commission.

Respective Responsibilities of the Chief Financial Officer and Auditor

As described on page 14, the Chief Financial Officer is responsible for the preparation of the financial statements in

accordance with the Statement of Recommended Practice “Financial Reports of Pensions Schemes 1996”. My

responsibilities, as independent auditor, are established by statute, the Code of Audit Practice issued by the Audit

Commission and my profession’s ethical guidance.

I report to you my opinion as to whether the financial statements present fairly the financial transactions of the Pension

Fund during the year, and the amount and disposition of the Fund’s assets and liabilities, other than liabilities to pay

pensions and benefits after the end of the scheme year.

I read the other information published with the statements of accounts and consider the implications for my report if I

become aware of any apparent misstatements or material inconsistencies with the statement of accounts.

Basis of Audit Opinion

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

Audit Commission, which requires compliance with relevant Auditing Standards issued by the Auditing Practices Board.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial

statements. It also includes an assessment of the significant estimates and judgements made by the Council in the

preparation of the financial statements, and of whether the accounting policies are appropriate to the pension fund's

circumstances, consistently applied and adequately disclosed.

I planned and performed my 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 financial statements are free from

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

overall adequacy of the presentation of the information in the financial statements.

Opinion

In my opinion the financial statements present fairly the financial transactions of Merseyside Pension Fund during the

year ended 31 March 2003, and the amount and disposition at that date of its assets and liabilities, other than liabilities

to pay pensions and benefits after the end of the scheme year.

Julian Farmer Address: Audit Commission

District Auditor The Heath Business and Technical Park

Runcorn

18 September 2003 Cheshire WA7 4QF

Scheme Administration

16

The Merseyside Pension Fund operates the Local Government Pension Scheme, which

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

and fire fighters, of the local authorities within the Merseyside area. It 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 Office of the Deputy Prime Minister

(ODPM). It is a contributory final salary scheme, which is contracted out of the Second

State Pension and is exempt approved for tax purposes.

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, ill 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.

The current regulations introduced from 1 April 1998 are currently the subject of a stocktaking exercise by the

responsible Government department, the ODPM.

Peter MawdsleyPrincipal Pensions Officer

Membership 31 March 2003 31 March 2002

Contributors 48,392 46,674

Pensioners 36,572 36,287

Deferred beneficiaries 15,772 14,709


17

Legislation

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

The Local Government Pension Scheme (Early Termination of Employment) (Discretionary Compensation)

(England and Wales) (Miscellaneous) Regulations 2002

(Into force 17 April 2002)

The Local Government Pension Scheme (Miscellaneous) Regulations 2002

(Into force 16 April 2002)

The Local Government Pension Scheme (Management and Investment of Funds) (Amendment) Regulations 2002

(Into force 9 August 2002)

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

be accessed via the Fund website.

The Quadrant, Windsor

Control of Early Retirement Costs

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

Service Standards Charter

Results of performance in respect of the 12 month period to 31 March 2003 against target are shown below:-

Performance Targets Target Within Target Performance %

1 Payment of retirement benefits 7 days 74

2 Payment of monthly pensions 100% 100

3 Payment of transfer values 7 days 97

4 Provision of inward-transfer quotes 10 days 90

5 Payment of refunds 7 days 94

6 Provide mis-selling costs 10 days 93

7 Provide valuation in divorce cases 10 days 98

8 Respond to members’ enquiries 10 days 94

Key Improvement Areas

The key improvement areas identified for the pension administration unit for the coming year are as follows: -

1 Improved efficiency through development of information technology capability and application.

2 Enhanced communications, consultation and marketing of the benefits of the Scheme to employers, employees andbeneficiaries.

3 Development of training policies and procedures to ensure the quality of service provision to Scheme members.

Consultation

Consultation will continue to be carried out with all groups of stakeholders, including active members, pensioners,deferred beneficiaries and employers.

The Service Standards Charter between the Fund and employers has been updated and incorporated in the Employers’Guide.

Comparisons/Benchmarking

The Fund participated in the Chartered Institute of Public Finance and Accountancy (CIPFA) benchmarking survey in2001/2002.

The results of unit cost comparison were as follows: -

Merseyside Pension Fund £21.20

CIPFA Average £20.60

Private Sector in–House £36.07

Private Sector Outsourced £28.01


18


19

Although slightly higher than the CIPFA average the Fund’s unit cost was substantially lower than both in-houseprovision in the Private Sector and third party providers. Within the overall total the survey confirmed that the Fund had alower staffing cost than the CIPFA average but had a higher expenditure on Communications and InformationTechnology (IT). This reflects the Fund’s commitment to improving communications with members and the extra costs ofdealing with the problems of Equitable Life. The high IT cost reflects historic charges in respect of a mainframecomputer which, has now been phased out and cost savings will appear in future years.

The Fund is also continuing to participate in a benchmarking forum consisting of representatives of five leadingMetropolitan Administering Authorities in an effort to seek out best practice.

Internal Dispute Resolution Cases

During the year to 31 March 2003, a total of 4 new cases were dealt with by the panel of Appointed Persons responsiblefor complaints against decisions made by the Fund.

A total of 21 new cases were dealt with by the Appointed Person responsible for complaints against decisions made byemployers. As in previous years the majority of cases have concerned either refusal to grant ill health retirement or tobring preserved benefits into payment early on ill health grounds.

Complaints to the Pensions Ombudsman

The Pensions Ombudsman determined one complaint against the Fund concerning maladministration as a result of anincorrect estimate of benefits issued.

Annual Employers’ Conference

The seventh Annual Conference is to be held on Tuesday 18 November 2003, in the Lecture Theatre of the MaritimeMuseum at Albert Dock, Liverpool. (Pictured below)

Consulting Actuary’s Statement

20

Merseyside Pension Fund

Accounts For The Year Ended 31 March 2003

Statement by the Consulting Actuary

The levels of contribution paid into the Fund in 2002/03 were governed by the 2001 actuarial valuation of the Fund.

Each employer paid the contribution rate certified in our contribution certificate dated 27 March 2002 - these rates were

determined having regard to the individual circumstances of that employer.

The principal financial assumptions used for the 2001 actuarial valuation were as follows:

For past service liabilities For future service liabilities

Investment return 5.6 per cent per annum 6.5 per cent per annum

Earnings growth* 3.3 per cent per annum 3.5 per cent per annum

Price inflation 2.3 per cent per annum 2.5 per cent per annum

* plus a salary scale for officers to allow for incremental increases.

The valuation method used was the Projected Unit Method.

The results of the 2001 valuation showed that, at the valuation date of 31 March 2001, the Fund’s assets were sufficient

to cover 94 per cent of its liabilities.

Stephen Jacquest

Fellow of the Institute of Actuaries

July 2003

Appendix A Employer Membership

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Birkenhead Sixth Form CollegeBurton Manor Residential Home

Carmel CollegeDingle, Granby, Toxteth Education Action Zone

Halewood Parish CouncilHugh Baird College

King George V CollegeKnowsley Community College

Knowsley MBCKnowsley Parish Council

Liverpool City CouncilLiverpool Community College

Liverpool John Moores UniversityMersey Waste Limited

Merseyside Fire & Civil Defence AuthorityMerseyside Magistrates Committee

Merseyside Passenger Transport Authority

Merseyside Passenger Transport ExecutiveMerseyside Police AuthorityNational Probation Service (Merseyside)Prescot Town CouncilRainford Parish CouncilRainhill Parish CouncilSefton MBCSouthport CollegeSt. Helens Community CollegeSt. Helens MBCSpeke Garston Education Action ZoneValuation and Community Charge TribunalWaste Disposal AuthorityWhiston Parish CouncilWirral Metropolitan CollegeWirral MBC

CURRENT SCHEDULED BODIES

Age Concern – LiverpoolAnfield Citizens Advice Bureau

Arriva North WestBeechwood Educare Centre

Berrybridge Housing LtdBirkenhead Citizens Advice Bureau

C.I.C. Drug ServicesCastle Independent Ltd

Catholic Childrens’ SocietyCDS Housing

Central Youth Club LtdCobalt Housing Ltd

Community Technical Services AgencyCompass Group PLC (Scolarest)

Cornerstone Care LtdDiocese of Liverpool

Enterprise (Liverpool Highways) LtdEnterprise (St. Helens)

Garston Citizens Advice BureauGlenvale Transport Ltd

Greater Merseyside ConnexionsGreen Apprentices LtdGroundwork Trust Ltd

Helena HousingInterserve (Facilities Management) Ltd

Jarvis Workspace (Wirral Schools)Jarvis Workspace FM Ltd (Liverpool Schools)

Knowsley Housing TrustLACORS

Lairdside Communities TrustLee Valley Housing Association Ltd

Libraries North WestLiverpool & Knowsley Family Service Unit

Liverpool 8 Law CentreLiverpool Airport PLC

Liverpool Citizens Advice BureauLiverpool Community Rights

Liverpool Council for Social Aid

Liverpool Hope UniversityLiverpool VisionLocal Government AssociationLocal Government International BureauMerseyside Innovation CentreMerseyside LieutenancyMerseyside Society for the DeafMerseyside Welfare RightsMerseyside Youth AssociationMott MacDonald (M.I.S.)National Care Standard Commission (NCSC)Netherley Citizens Advice BureauNorth Huyton New Deal New FutureNorth West Tourist BoardNugent Care SocietyOld Swan Citizens Advice BureauOmnisure Property Management Parkhaven TrustPartners Credit UnionReliance Secure Task ManagementSheila Kay FundSir Robert Jones Memorial WorkshopsSouth Liverpool Housing LtdSouthern Neighbourhood CouncilSpeke Garston Development CompanySt. Gabriel’s Community HomeSt. Helens & District Society for the DeafSt. Helens Careers ServiceThe Peoples CentreThe Port Sunlight Village TrustVauxhall Neighbourhood CouncilVillage Housing Association LtdVinci Services Ltd (Holst FM)Vinci Services Ltd (Lorne Stewart)Walton Citizens Advice BureauWavertree Citizens Advice BureauWirral Autistic SocietyWirral Council for Voluntary Service

CURRENT ADMISSION BODIES

Appendix B Fund Background

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Merseyside Pension Fund - Background Details

The Merseyside Pension Fund was formed upon the re-

organisation of Local Government in 1974 when the

Merseyside County Council was set up to carry out

selected functions for the area. Smaller funds were

combined to form one large fund with an initial size of

around £42 million.

The Local Government re-organisation of 1986 saw the

abolition of the Metropolitan County Council, and the Fund

initially passed to the Merseyside Residuary Body. On

1 October 1987 the responsibility was transferred by

statute to Wirral Metropolitan Borough Council, who were

charged with the administration and management of the

Fund.

The Fund at that time had increased in value to

approximately £1.1 billion. Since then growth of the Fund

has been steady and at times spectacular. With assets of

£2.47 billion as at 31 March 2003 the Fund ranked fifth

largest Local Government fund, and amongst the top 40

largest pension funds in the United Kingdom.

Wirral Council gave a commitment in 1987 to maintain a

Fund presence in Liverpool to facilitate visits from the

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

Mersey. The administration offices are in Castle Street in

Liverpool City Centre, within Castle Chambers, an office

building owned by the Fund.

Appendix C Pensions Committee Items

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WIRRAL MBC PENSIONS COMMITTEE

Reports Considered at Pensions Committee

The Committee met on 7 occasions during 2002/2003 to discuss the following items. Reports from the InvestmentAdvisory Panel and the Pensions Information Office are also considered at each Committee Meeting.

5 June 2002

Equitable Life UpdateFRS17 Accounting for Retirement BenefitsInvestment in Regional FundsInvestment Advisory Panel - Role and MembershipInvestment ManagementLGPS Stocktake ExerciseAdmission Applications

25 June 2002

Investment ManagementMonitoring Transaction Costs

17 September 2002

Latin America Capital PartnersReview of Statement of Investment PrinciplesTreasury ManagementEquitable Life UpdateStaffing Review - Administration and InvestmentsAdmission ApplicationsInvestment Management

19 November 2002

Bank SignatoriesFund Accounts Year Ended 31 March 2002Investment Management Beyond TransitionLGPS Modernisation and SimplificationIncidence of Ill Health RetirementProperty ManagementScheme AVC ArrangementsAdmission Applications

17 December 2002

Investment Management ArrangementsSocially Responsible Investment Seminar

29 January 2003

Finance Department Plan 2003-2006Pensions For CouncillorsTreasury Management Policy StatementReview of Scheme AVC arrangementsStocktake of the LGPS UpdateSecurities LendingGreen Paper on Pensions ReformInvestment Management ArrangementsInterim Actuarial Review as at 31 March 2002District Audit Report for 2001/2002Draft Administrative Budget 2003-2004Admission Applications

25 March 2003

Treasury Management Plan and Strategy 2003/2004Securities LendingStocktake of the LGPS UpdateSocially Responsible Investment PolicyInvestment Management ArrangementsAudit Plan 2002/2004Admission Applications

INVESTMENT ADVISORY PANEL

Meetings were held on:- 15 May 2002, 24 July 2002, 30 October 2002 and 22 January 2003.

Appendix D Information Contacts

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Merseyside Pension FundInternet Website Address: http://www.mersey-pens-fund.demon.co.uk

Area Name Telephone number Extension

Assistant Director of Finance John Parry 0151 227 3316 1312

Pensions Administration Peter Mawdsley 0151 236 4205 1333

Pensions Investment Leyland Otter 0151 227 3316 1316

Financial Controller Gerard Moore 0151 227 3316 1307

Transfers Margaret Rourke 0151 236 4197 1369

Benefits/Payroll Kevin Greenough 0151 236 4208 1354

Communication Sue Davies 0151 236 4208 1361

AVC / Added Years David Brown 0151 236 4240 1380

Information Technology Karl Sherbrooke 0151 236 4208 1342

Resolution of Disputes

Fund Decisions Director of Finance 0151 666 3491

Employer Decisions Principal Pensions Officer 0151 236 4205

Scheme Employers

Fire and Civil Defence Helen Jones 0151 225 2194

Knowsley M.B.C. Mary McDonald 0151 443 4177

Liverpool C.C. Vanessa Duncan 0151 233 3003

Liverpool J.M.U. Terry Jones 0151 231 3562

Arriva North West Les Usher 0151 522 2814

MerseyTravel Linda Gedman 0151 227 5181

Sefton M.B.C. Mike Nelson 0151 922 4040 4126

St.Helens M.B.C. Eric Astley 01744 456038

Police Authority Ann Williams 0151 709 6010 8251

National Probation Service Kevin Stamper 0151 920 9201(Merseyside)

Waste Disposal Peter Leyland 0151 709 3607 2351

Wirral M.B.C. Brian Beecroft 0151 666 3524

Documents

2002/2003