News & Events

Welcome to Avon Pension News. This issue is packed with information of interest and relevance to you as a member of the Avon Pension Fund. Feel free to pass the newsletter to any of your colleagues who are not in the Local Government Pension Scheme. I hope you enjoy reading this issue; all feedback is welcome, so contact Melanie Clark on 01225 395280 or email her on Melanie_Clark@bathnes.gov.uk

IN THIS ISSUE:

CONTACT US

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

Telephone: 01225 477000
Facsimile: 01225 395258

Email: avon_pension@bathnes.gov.uk 
OR you can complete an on-line comment form

Please quote your National Insurance number and name of your employer when contacting us – we’ll be able to locate your records and deal with your query quicker!

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W(H)ITHER THE LGPS?

The Government has begun a review of the LGPS, known as the Stocktake Exercise, and has recently issued the first of a series of informal discussion papers to LGPS interests (including the major councils and trades unions). A number of ideas are suggested but no firm proposals are put forward at the moment. Responses to this paper are required by April 2003. Paper available at http://dialspace.dial.pipex.com/town/road/xoq83/rtbdp.htm

The Government states its main concern is the suitability rather than the affordability of the existing Scheme. It recognises that the final salary scheme as currently designed may not be wholly suitable for all staff, in particular part timers and casual workers. However, no immediate regulatory changes are in prospect and the Government has said that any changes to the current scheme will not apply to those who are members at the time of the change. It is too early to draw any significant conclusions at this stage but be assured that we will keep you fully in the picture as events unfold. The LGPS is not alone in looking at current pension provision. The recently published Pickering Report ‘A simpler way to better pensions’ was also commissioned by the Government. Some of its aims are similar to the Stocktake but it covers both public and private sector pensions. A Green Paper on Pensions was issued in December 2002 and its contents may well affect the Stocktake, for more details go to www.dwp.gov.uk. The April 2003 deadline for comments on the Stocktake has been set so that respondents can take the contents of the Green Paper into account.

Conclusion? Pensions are firmly in the spotlight and it seems pretty certain that the LGPS will change but not for quite some time. One message however does appear clear which is that if you are eligible to join the LGPS and have not done so already, it will be better to be in the Scheme before the date of any changes.

BRAND NEW WEBSITE FOR THE FUND

Avon Pension Fund’s brand new website was recently launched. The address is www.avonpensionfund.org.uk and the site contains a wealth of useful information, including Frequently Asked Questions, news and events, information about joining, leaving, main benefits of the Scheme, contributions, absences and payouts. If you’ve moved – use the online change of address form to tell us. Got a question about your pension? Use the online comments/query form.

Have a look – there is something relevant to everyone on the site. Let us know what you think - we welcome your feedback.

Audio tape, Large print and Braille in English can be provided and also translated into other languages. For further information please contact Avon Pension News on 01225 395280

NEWS….
WARNING!

PENSION LIBERATION SCHEMES

Occasionally products offered by the financial service industry are "questionable". A few years ago there was the pensions misselling scandal where people were encouraged by certain pension providers and their sales force to leave good occupational pension schemes for poorer personal pensions. Eventually the practice was uncovered and censured.

Another questionable area of pension sales is now under investigation by Opra (the Occupational Pensions Regulatory Authority). Opra was set up by Parliament under the Pensions Act 1995 to help make sure that occupational pension schemes are run safely and properly. It investigates and takes action where there are breaches of the Pensions Act and has a wide range of statutory powers and penalties which include imposing fines, authorising criminal prosecutions and referring cases to police and other prosecuting authorities. The area Opra is now investigating is the promotion of so called "pension liberation schemes". On 3 May 2002, Opra issued the following Press Release. You should take note of Opra’s warning if you have been approached by the organisers of such a scheme.

OPRA WARNS AGAINST PENSION LIBERATION

Opra is working with the Inland Revenue to look into several organisations offering pension liberation services.

Opra chairman Harriet Maunsell today warned the public to be on their guard against these schemes, which claim to convert your pension into an immediate tax-free lump sum. This practice is sometimes referred to as "trust busting".

The organisers of these liberation schemes use adverts to attract people who urgently need cash. The adverts offer to turn pension benefits into a tax-free lump sum. However the people offering this service usually charge high commissions ranging from 20 to 30% of the individual’s total fund. Transactions are often arranged using offshore companies and bank accounts. Typically, the individual’s existing pension scheme will receive a request from the pension liberator to transfer their pension money to a scheme in the name of a fictitious new employer created solely for the purpose of trust busting. Harriet Maunsell warned consumers: "If you get involved in this kind of scheme you are taking a high risk with your pension benefits – the rewards are questionable to say the least, and the organisers are likely to be unscrupulous. As well as paying up to 30% of your money in commission to the "liberators" you could also end up paying as much as 40% tax on the total amount as well. Altogether that means you could lose 70% of your pension money."

The government offers tax relief to pension funds to help people build up provision for retirement. Opra, the Department for Work and Pensions and the Inland Revenue have all expressed concern about individuals losing their hard-earned pensions savings and then not having a decent income in retirement.

For more information go to http://www.opra.gov.uk/publications/PensionsLiberation/shark1-03.shtml

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RESPONSIBILITY FOR THE LGPS MOVES TO THE OFFICE OF THE DEPUTY PRIME MINISTER

Following ministerial changes at the end of May 2002, the Department of Transport, Local Government and the Regions (DTLR) was broken up. Responsibility for local government matters – including the Local Government Pension Scheme (LGPS) – now comes under the Office of the Deputy Prime Minister (ODPM). http://www.odpm.gov.uk

PENSION RIGHTS OF PART-TIME EMPLOYEES - UPDATE
Decision of Employment Tribunal June/July 2002

Following the recent decisions of the Employment Tribunal in respect of the part-time worker pension cases, the implications for those who are members of public service pension schemes are being considered.

The Local Government Pension Scheme is a statutory, public service pension scheme. Unlike a private sector pension scheme where the rules are set out in a trust deed and the scheme’s trustees and employers will decide independently how to apply the Tribunal decision, the LGPS has its rules set out in legislation made by a Secretary of State. The government department which currently has responsibility for the Scheme is the Office of the Deputy Prime Minister ("ODPM"). The Government is currently studying the Tribunal decision in order to decide how that decision affects all the public service pension schemes and to consider the administrative implications. This should ensure a consistent approach.

Thereafter, it will be for representatives of the ODPM, Scheme employers and the trade unions to meet and to agree what action should be taken by administrators of the Local Government Pension Scheme and Scheme employers. Ministers will also need to determine the extent to which the Regulations governing the Local Government Pension Scheme will need to be amended. Such amendments are made by Parliament.

It will not be until the administrative and regulatory changes have been agreed and published that Bath and North East Somerset Council as the Fund administering authority will be in a position to notify those who are affected. As soon as we have more information, we will ensure you are kept advised.

Full details of the Employment Tribunal decisions can be found on the Employment Tribunals website www.employmenttribunals.gov.uk

EQUITABLE LIFE AND YOUR AVCS

We told you previously that Friends Provident had been appointed as an additional AVC provider. We now have 498 members with them, most of whom transferred from Equitable. There are, however, members who still have funds with Equitable. This article is for their benefit and traces Equitable’s continuing decline and what steps the Fund has taken to keep members informed and protect their interests.

Equitable’s financial position has worsened since this time last year. The GAR problem was resolved in March this year but at a cost – GAR holders had an uplift to their policies of 17.5% in exchange for giving up their GAR rights (the right to buy pension at a fixed rate at retirement). At the same time, non-GAR ‘with profit’ policy holders (of which the Avon Pension Fund is one) had an uplift to members’ funds of 2.5%. The surrender penalty has significantly increased over the year with a view to deterring members from moving funds; it now stands at 20%. This penalty does not apply to members using their AVC funds to buy immediate pension (in this case a 10% penalty can apply although there may be an underlying guarantee for some contributors which may reduce or even cancel this out).

Despite Equitable’s attempt to retain funds, the assets of the Society have been falling fast and their current solvency position is in question. Although it has sufficient funds to meet its liabilities, it is strictly not solvent under the Financial Services Authority’s (FSA) measure which is more rigorous than a simple "is there enough money to meet the liabilities." This calls for the Society to have a certain level of free assets above this. The FSA say however that there are no plans for administrators to be put into Equitable or to wind it up and it is expected that everything possible will be done to avoid this.

The future for Equitable remains uncertain and there does not seem to be any prospect of good news in the immediate future. The Fund however cannot give financial advice to members on whether they should retain their funds in Equitable. This is a matter for personal judgement; members are strongly advised to consult an independent financial adviser if they are in any doubt what to do.

What has the Fund done to protect members’ interests?

The Fund took the decision not to allow members to invest future contributions in Equitable’s ‘with profit’ fund from September 2002 as it did not feel that Equitable was viable for future investment of members’ money. It has also written to members over 50 reminding them of the option to transfer their AVCs into the Fund to buy additional service credits before retirement. This has the advantage of removing future investment/annuity risk; however, this needs to be weighed up against the fact that the current surrender value would probably include a 20% penalty. We are currently processing requests and to date 51 members have taken up this option.

We will continue to write to members personally affected if there are significant further developments.

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WE’RE COMING YOUR WAY!

Following the success of the pension clinics held earlier this year, the Avon Pension Fund plans to hold more in 2003. Clinics will be held throughout the former Avon area, so there is sure to be one near you.

Keep your eye on the ‘Events’ section of our website and look out for posters and other publicity in the new year.

STATE PENSION

Whilst we are more than happy to assist with your queries concerning the Local Government Pension Scheme, we are not able to do so with the state pension. If you would like a forecast of your state pension, you can get one from The Pension Service. It will show you in today's money the state pension you have already earned and what you can expect to have earned by state pension age. Write to: Retirement Pension Forecasting Team at Room BP001, Tyneview Park, Whitley Road, Newcastle upon Tyne, NE98 1BA for a forecast form (BR19) and a return envelope. Or you can call the Team on 0845 3000 168 and they will fill in the form with you over the phone; you can call Monday to Friday from 9am to 5pm. Calls are charged at local rates. Alternatively, you can complete an on-line application form at The Pension Service website: http://www.thepensionservice.gov.uk/approaching_retirement/introduction.asp#how

MORE ABOUT US…

Even though Avon County Council was abolished in April 1996 and replaced by 4 unitary authorities, the Avon Pension Fund has survived intact with Bath & North East Somerset taking on the role of Administering Authority. The Fund continues to look after the pension benefits of members of the former County Council and District Councils who left local government before re-organisation. Since 1996 the Fund has grown rapidly. It is one of the largest local authority funds in the UK and has a membership of over 60,000 - current members accounting for over 50%. The Fund value is a massive £1.2 billion, which is significantly bigger than the annual net budget for all four unitary authorities combined.

We are based in Keynsham and have nearly 40 staff looking after members’ interests. All members’ records are computerised and benefits calculations are too. There are staff in benefits processing, pensions payroll, systems support and development, accounts, investment monitoring, compliance, communication and staff training:-

A large number of the staff have a wealth of experience within the Section. However, with the expansion of the Fund membership it has been necessary to take on some new staff. Although not experienced in local authority pensions they are learning fast! An in-house training officer provides ongoing training to staff under a scheme which ensures that they are all equipped to carry out their work efficiently. Staff are encouraged to study for professional pensions qualifications which will broaden their pensions knowledge and enhance their skills. For a full list of the staff in the Pensions Section, go to:- http://www.avonpensionfund.org.uk/contact/contacts.htm

And finally our main concern…The primary aim of the Pensions Section is to ensure accurate calculation and timely payment of all pension benefits to members of the Avon Pension Fund.

REMINDER…

As an active member of Avon Pension Fund you have automatic life cover. Should you die, the Fund pays a lump sum of two years pay. By completing a nomination form, you can nominate whoever you like to receive this. If you have not already done so, contact us for a form. If your circumstances have changed since originally completing a form, you’ll need to complete a replacement. To download a nomination form and obtain more information go to:- http://www.avonpensionfund.org.uk/contributions/deathgrant.htm

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ANNUAL REPORT HIGHLIGHTS

The only equity markets to show positive returns in the financial year 2001/2002 were the Pacific Rim (excluding Japan) and the Emerging Markets. Otherwise the decline in equity markets which began in 2000/2001 continued in 2001/2002.

At the end of the year the prospect was for only modest economic growth with inflationary pressures remaining subdued. This is an environment which favours bonds but does not help equities because companies find it difficult to increase their profits.

As mentioned in the last newsletter, the Fund appointed new "active" managers with effect from March 2002. Merrill Lynch Investment Managers and Gartmore have now been replaced by Capital International (Multi-Asset, 35%), Threadneedle Asset Management (UK Equities, 14%) and Wellington International (Overseas Equities, 11%). The Fund's passive manager continues to be Barclays Global Investors, their existing Multi-Asset portfolio (30%) having been supplemented by a new Specialist Bond brief (8%). The remaining 2% of the Fund consists of a UK Equity Socially Responsible Investment Portfolio managed by Jupiter Asset Management.

The new investment management structure has a performance objective of outperforming the average local authority pension fund by 0.5% per annum net of fees.

FUND ACCOUNT

VALUE OF FUND 1998 – 2002 (£m)

FUND ASSET DISTRIBUTION AT 31 MARCH 2002

PENSION FUND INVESTMENTS

With the world’s major equity markets continuing their decline during the last financial year, the return on the average local authority fund was again negative. However, with the fall in equity markets less pronounced than in 2000/2001 and returns from bonds and property positive, the average fund return was, at -0.5%, only marginally negative. The Avon Pension Fund’s return, which included transition costs, was -2.7%.

Although 0.4% of the 2001/2002 underperformance was attributable to transition costs, the principal contributing factor was, as in 2000/2001, the performance shortfall of Merrill Lynch Investment Managers (MLIM) relative to the average fund. Both MLIM and Gartmore were replaced by new managers in March 2002 (hence the transition costs) and it is hoped that this will lead to improved performance in the future.

Set out on this page is a chart which compares the 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 2002. The rates of return are annualised.

Copies of the Fund’s most recent Statement of Investment Principles can be obtained by email from Tony Worth (tony_worth@bathnes.gov.uk), by telephone (01225 395281) or by writing to the Investments Officer at the Fund’s Riverside offices in Keynsham. Alternatively you can access it on the Fund’s website.

Largest Investments

The Fund’s top 10 global investment holdings by market value at 31 March 2002 were:

THE FUND’S STATE OF HEALTH

The 31 March actuarial valuation revealed that, because of the decline in equity markets in the financial year 2000/2001, the Fund’s assets covered only 94% of its liabilities at that date. This compares with the 1998 valuation when assets exceeded liabilities by 4%.

The change in funding position, together with other factors such as increasing longevity, resulted in an increase in contribution rates for most employers with effect from 1 April 2002.

With equity markets continuing to decline in the 2001/2002 & 2002/2003 financial years, the funding level is now substantially less than 99.4%. Scheme members should, however, be reassured that their benefits are guaranteed and that there are currently no indications that employee contribution rates will be increased.

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AVON PENSION FUND MEMBERSHIP

LONG TERM INVESTMENT PERFORMANCE

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