News & Events

Avon Pension News

 Issue 2 Autumn 2001

This is a text version of the newsletter. A full colour version can be viewed Avon Pension News  - Autumn 2001 issue   If the pdf version takes too long to download, the text version contains identical information.

Welcome to the second issue of Avon Pension News. We hope you enjoyed the first issue. This newsletter tells you what’s happening in the Local Government Pension Scheme and the information provided should be of interest and relevance to you as a member of the Scheme.

Jean Hinks, Resources Director

INCLUDED IN THIS ISSUE

• Increasing your Pension benefits
• Avon makes Friends
• When can I retire?
• Regulation changes
• Partners Pensions
• Pension Fund Forum
• Socially responsible Investment
• Part-time staff
• Fund account highlights

Avon Pension Fund, Floor 3 South, Riverside, Temple Street,  Keynsham BS31 1LA

Telephone: 01225 477000
Facsimile: 01225 395258
Email: avon_pension@bathnes.gov.uk 

Please quote your National Insurance number and the name of your employer when ringing us or writing.

Your feedback and comments on this newsletter are welcomed. Please contact Melanie Clark at the address shown on the left, telephone 01225 395280 or email Melanie_Clark@bathnes.gov.uk

Members of the Local Government Pension Scheme (LGPS) have the following choices to consider when deciding how to increase their benefits:

• Purchasing extra years of membership (commonly known as 'added years') in the LGPS
• Paying additional voluntary contributions (AVCs) via the LGPS to the scheme's AVC plan (commonly known as scheme AVCs or in-house AVCs)
• Paying free-standing additional voluntary contributions (FSAVCs) to a FSAVC provider of your personal choice
• Paying contributions to a concurrent stakeholder pension scheme
• Paying contributions to a concurrent personal pension scheme
• Repaying contributions previously refunded under the LGPS *

* This will only apply if you meet the following criteria:

Not all of the above alternatives will apply to every individual. Our booklet "Increasing Your Pension Benefits" provides you with basic information on each of the above options. A copy can be obtained by contacting the Pensions Department

FRIENDS PROVIDENT APPOINTED AS ALTERNATE AVC PROVIDER

Earlier this year Avon Pension Fund became one of the first local authority schemes to appoint an alternate AVC provider - Friends Provident - for Additional Voluntary Contributions (AVCs) This followed Equitable Life's decision to close its doors to new business. Here, we unfold the story so far

Equitable, one of the biggest and longest established providers of AVCs to local authority pension funds including Avon, made promises it couldn't afford to keep. It promised 90,000 customers it would guarantee its annuity rates. However, against changing market trends - falling interest rates and greater longevity of customers - it became clear this was 'overly' generous. Equitable appealed to the House of Lords to lift the promise but lost and, facing a potential liability of £1.5 billion, put the business up for sale. The nature of the agreement made buyers hard to come by.

Prudential Assurance came on the scene and was close to buying Equitable in December 2000, when it unexpectedly pulled out. Equitable then "closed its doors to new business" and also imposed a 10% penalty on 'with-profit' fund holders wishing to move their funds to other providers, except at retirement. Prudential withdrew; however, Halifax has since agreed to buy part of Equitable’s business, injecting £500 million, but the 'with-profit' fund penalty remains and increased to 15% in March. Investment returns on Equitable AVC funds are now controlled by the investment managers of Clerical Medical, which is also owned by the Halifax.

Only pension fund members who pay AVCs to Equitable are affected. The Avon Pension Fund is not invested in Equitable, as a recent local newspaper article incorrectly reported.

Following an in-depth review of AVC providers, the Pension Committee appointed Friends Provident as an alternative to Equitable Life in February 2001. Its advanced technology will offer members the potential to track their funds online. Equitable Life is being retained but is not being offered to new AVC payers.The Pensions Committee had planned to offer members a choice of AVC providers anyway, however Equitable's problems made an early appointment vital.

There was further bad news for all Equitable with-profit fund holders, not just those transferring, when in July, Equitable Life reduced its non-guaranteed bonus, reducing fund values by up to 20%. Equitable blames the poor stock market returns since the start of 2000 for the move. The exact amount of the reduction will vary amongst members, depending upon when they started paying. There are just under a thousand members in the Avon Pension Fund who have AVCs in the Equitable with-profit fund and they will know when they receive their next Equitable AVC statements precisely how their own fund has been affected. Equitable has advised us that the issue of these statements has been delayed until later in the year.

There is some good news however, in that the 15% penalty on moving with-profit funds (referred to earlier) has been reduced to 7.5%; but this is applied to the reduced value of the member’s with-profit funds. The Avon Pension Fund wrote to all members who have with-profit funds with Equitable, giving full details of this latest change.

Equitable Life has just issued a Consultation Document on a proposed compromise plan intended to remove the open-ended nature of its liability to its guaranteed annuity rate policyholders, in exchange for a one-off uplift of 17.5% to their policy values. With-profit policyholders including the Fund’s AVC members stand to have their values uplifted by 2.5% if the plan is accepted. The definitive Plan will be issued in December and if accepted by 50% of policyholders in number (75% in value) the uprating of values is expected in March of next year. With the help of its advisors, the Fund will be monitoring the situation closely and will send out further announcements to those affected to keep them informed

Following a number of enquiries about retirement ages, the information below sets out what happens if you retire at the ages shown: 

65 Normal Retirement Date

60-65 Voluntary (No Consent Needed)

50-59 Voluntary (Employer Consent Needed)

50-65 Redundancy/Efficiency

No Age Limit Permanent Ill-health

N.B. In certain circumstances benefits may be reduced. We recommend you contact the Pensions Department to discuss your individual situation.

The Pension regulations were amended in April and May of this year. The points below are ones of interest to members:

• Admission Agreements – members can now remain in the LGPS when their current employer outsources an internal service, providing the new employer agrees for them to remain members. This does not apply to members who are employed by employers who have been admitted to the Pension Fund by agreement.

• Scheme Retirement Age – new employees appointed over the age of 65 can no longer join the Fund

• Pension in Lieu of Lump Sum – members under 50 who retire on ill-health grounds can now opt to convert some or all of their cash lump sum into extra scheme pension

• Election for pension in lieu of retirement grant and election for lump sum in lieu of pension - pre 1 April 1998 deferred members – members who left the Fund with deferred benefits now have the same rights as leavers after that date to exchange pension for cash or cash for pension on retirement.

• Annuity Purchase – Following a change in the Inland Revenue rules, members do not have to take their AVC pension annuity at retirement. Instead they can choose to take it at any time up to age 75.

• Eligible Children – This amendment deals with the qualification for a child's pension. It introduces a provision that requires a deceased member's dependant child to have been born before the first anniversary of the member's death in order to be entitled to a child's pension. It also provides for equal and consistent treatment between legitimate and illegitimate children.

• Aggregation of Concurrent Employments – This amendment permits a member who has one or more concurrent employments which end whilst that member remains an active member in a continuing employment, to aggregate their membership in that continuing employment.

Earlier this year, all Local Government Pension Funds were asked by the Local Government Pensions Committee (LGPC) of the Employers’ Organisation to distribute a questionnaire relating to the future provision of partners’ pensions to all the employers in their Fund.

Following the employer’s response, a joint paper is being prepared by the LGPC and the Unions for issue to the Government. This sets out the proposals for amending the Pension Scheme rules to provide partners’ pensions.

The AVON PENSION FUND held PENSION FORUMS in Bath and Bristol on June 12th & 13th. The events were a success, which was very encouraging as these were the first in a series of events. Many more people attended the events than was anticipated, with over a thousand people visiting the events over the two days.

The Forums incorporated a combination of exhibition stands and pension clinics. ‘Boosting your Local Government Pension,’ ‘Scheme Investments’ and ‘Current Pension Developments’ exhibition stands were visited by over three hundred people. Visitors to the pension clinics had the opportunity to have their specific pension queries answered.

The clinics were extremely popular, being visited by well over two hundred individuals and couples over the two days. The numerous positive comments, as well as some improvement suggestions will be taken into account when planning further events.

Avon Pension Fund has invested part of the Fund in a portfolio of stocks which take account of environmental and social trends.

Last year, the Pensions Committee decided to offer for investment management a small part of the Fund in which the stock selection process specifically took account of these trends. The term used to describe this type of investment is Socially Responsible Investment (SRI). This means investing in companies which contribute to, or benefit from, the trend towards more environmentally and socially sustainable economic activity.

Jupiter Asset Management was appointed after interviewing a short-list of candidates earlier this year. The new portfolio became operative on 1 April. The companies they will include in the SRI portfolio are those providing products which either solve environmental and social problems or minimise these impacts in their processes. Categories of stock which the portfolio would exclude are tobacco, armaments, nuclear power and animal testing of cosmetics and toiletry products.

The portfolio is not an "ethical" portfolio in that it does not exclude stocks and sectors on moral grounds. The choice of stocks has to be justified on financial grounds and this is reflected in a performance target for the portfolio of 2% per annum in excess of the Financial Times Actuaries All-Share Index return.

Due to the experimental nature of the SRI portfolio, the Pensions Committee is allocating only 2% (approximately £40 million) of the Fund to it at this stage. Jupiter is already managing a similar portfolio for another local authority pension fund and the Council is encouraged by its track record to date. Providing the SRI portfolio proves to be a success, the Council's intention is to allocate more of the Fund’s money to it at a later date.

The Statement of Investment Principles is available on request

Did you know that as a member of the Pension Scheme you have automatic life cover? In the event of your death the Scheme pays a lump sum death gratuity of two years pay. You can nominate whoever you would like to receive this, by completing a nomination form. This allows the Avon Pension Fund to pay this gratuity to your nominee or nominees at its discretion. By completing a nomination form, the Pension Fund is able to pay the gratuity promptly and avoids time consuming and expensive legal formalities. If you have already completed a form but your personal circumstances have changed, you can change the nomination and complete a replacement.

Two test tribunal cases are currently being heard involving the Local Government Pension Scheme. When the results of these tribunals are known, the Avon Pension Fund will have to wait either for advice or a change in the rules from the Government before it is able to proceed with this matter. This is not likely to be in this calendar year and we will keep members advised of any changes affecting them.

The following employers have been accepted into the Avon Pension Fund:

The last financial year was exceptional in that it was the first year since 1987/88 that local authority pension funds recorded a negative return on their investments due mainly to heavy falls in world equity markets. In recent years equity markets have performed well because the developed economies enjoyed a period of sustained growth.

However, during the final quarter of the last financial year, investors lost confidence faced with the prospect of a slowdown in the world economy with adverse consequences for company profitability.

Contributions 53.7

Investment Performance 41.7

Transfers in 8.64

Other income 0.17

Benefits Payable 60.2

Leavers 9.27

Investment expenses 2.24

Administration expenses 1.25

Because of the downturn in world stock markets during the first quarter of 2001, local authority pension funds had negative investment returns for the first time since 1987/88. The Avon Pension Fund's return for the financial year 2000/2001 was -7.9%. This compared with an average local authority pension fund return of -6.3%. By mid-2000 the Fund's investment managers had been in place for three years. Because neither of the active managers had succeeded in achieving their performance target during this period, Bath & North East Somerset Council's Pensions Committee decided that the Fund's investment management structure should be changed and new mandates advertised. It is anticipated that the new arrangements will be in place by 31 March 2002. Set out on this page is a chart which compares the investment performance of the Avon Pension Fund with that of the average local authority pension fund for 3, 5 and 10 years up to 31 March 2001. The rates of return are annualised.

The Fund’s top 10 global investment holdings by market value at 31 March 2001 are:

The ‘health’ of the Fund is assessed every 3 years through an Actuarial Valuation. The last one in 1998 revealed the Fund’s assets exceeded its liabilities by 4%, meaning the Fund had a surplus. A further valuation as at 31 March this year is currently underway.

Results will not be available until early in the New Year, however, a number of factors are likely to adversely affect the funding level. The two major factors are:

The combination of lower asset values and increased liabilities may result in an increase in the employers’ contribution rates from April 2002, although we cannot be sure of anything until the Report on the Valuation is published. Employee contribution rates will not change.

Employed 24235                                                              Employed 27820

Pensioners 14558                                                            Pensioners 12371

Deferred 6838                                                                  Deferred 9733

Employed 29525                                                              Employed 31746

Pensioners 15420                                                            Pensioners 15728

Deferred 9381                                                                  Deferred 9996

Employed 32412

Pensioners 15778

Deferred 12485

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