2011 - Lambeth · Local Authority Funds for investment income growth in June 2011 by the LAPF Investments magazine. In the year to 31 March 2011, the Fund value increased to £778m

Lambeth Pension Fund Annual Report 2010/11

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London Borough of Lambeth

Corporate Finance

Finance and Resources

Olive Morris House

London SW2 1RL Published September 2011

Annual Report & Financial Statement

2011

Lam

beth

Pensio

n F

und


1

CONTENTS

Contents 1 Chairman’s Report 2 Review of the Year 3 Management Structure 5 Governance Compliance Statement 7 Communication 9 Risk Management 10 Pensions Administration Report 11 Investment Report 12 Investment Performance 13 Financial Performance 16 Financial Statements 17 Notes to the Financial Statements 19 Actuarial valuation of retirement benefits 27 Funding Strategy Statement 29 Statement of Investment Principles 29 Compliance Statement 30 Actuarial Statement 31 Statement of Responsibilities 33 Independent Auditor’s Report 34


2

CHAIRMAN’S REPORT

.

It is my pleasure to introduce the 2010/11 Lambeth Pension Fund Annual Report

This has been an important year for the Fund when it has implemented a new investment strategy

agreed the previous year. The transition to the new approach has been a considerable task, but has

gone smoothly. Early signs of performance are encouraging, which are especially welcome as a new

actuarial valuation showed, like most funds, a continuing deficit.

In an environment where there is considerable debate about public sector pensions, further changes in

requirements on the fund in the next year might be anticipated. The fund is well placed to handle

changing demands on it.

Thanks are due to the members of the Pension Fund Investment Panel Cllrs Sabharwal, Garden,

Barratt, Truesdale and Memery. In particular the contribution of the co-opted members should be noted;

Paul Martin (Pensioner Representative), Lesley Wood (Pensioner Representative), Joseph Nartey

(Council Staff Representative), Kathryn Crockford (Council Staff Representative) and Mr Peter

Woodward (Trade Union Representative).

Finally I should like to thank Harry Musisi and Olu Akinrinmade for their efficient administration of the

Fund’s assets.

Councillor David Malley Chairman

Pension Fund Investment Panel

July 2011


3

REVIEW OF THE YEAR

The 2010-11 financial year was filled with many remarkable events, such as the earthquake/tsunami in

Japan, the political unrest in the Middle East and North Africa, and the floods in Queensland and

Victoria. These global events caused much disruptions and affected performance particularly during the

last quarter of the financial year to 31st March 2011.

Equity markets continued to produce positive returns in both sterling and local currency terms in most

major markets over the last year, with the exception of Japanese equities, which fell in both sterling and

local currency terms. Bonds, property and commodities all continued to produce good positive returns

over the one year period to 31 March 2011.

Following the selection and appointment of the new fund managers in February 2010, the Fund

successfully transferred the assets from the legacy managers to the new fund managers in summer

2010. The revised investment strategy is already bearing fruits as the Fund was ranked 2nd out of 109

Local Authority Funds for investment income growth in June 2011 by the LAPF Investments magazine.

In the year to 31 March 2011, the Fund value increased to £778m. The Fund had a market appreciation of £13m compared to £200m appreciation in 2009/10.

In the year the Fund received £53.2m as contributions from employers and employees and paid out

£39.6m in total as pension benefits to its members. The total contribution included £13.5m paid by

Lambeth Council towards repayment of the Fund’s deficit.

Triennial Valuation

The Fund actuarial valuation is carried out every 3 years, the last one was in 2007. In 2010/11, the

triennial actuarial valuation was carried out by the Fund actuary Hyman’s Robertson LLP. Based on

the set of valuation assumptions, the value of the Fund’s liabilities in respect of benefits already earned

by members at the valuation date was £1,055m (2007- £900m). Given that the market value of the

Fund’s assets at this date was £765m, this implies a funding level of 73% (2007 - 81%) and a deficit of

£290m (2007 - £172m).


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The change in financial conditions and long term assumptions between the 2007 and 2010 valuation,

have given rise to a gain of £1m. This figure consisted of:

• Restricting the salary increase assumption to 1% over the next 2 years resulting in a reduction in

the value placed on liabilities of about £24m;

• Allowing for the change in the inflation index from the Retail Price index (RPI) to Consumer Price

Index (CPI) for setting future pension increases following the Chancellor of the Exchequer’s

announcement in his Emergency Budget on 22 June 2010; resulting in a reduction in the value

placed on liabilities of about £32m; and

• The change in underlying financial conditions increased the value placed on liabilities by about

£55m.

As the result of the valuation, new employers’ contribution rates effective from 1 April 2011 were set for

the administering body and the participating employers. Further details are given in note 5 to the

accounts.

Membership

As at the end of March 2011, the Fund had 5,151 active members, 6,642 deferred members and 6,581

pensioners. In total, the Fund had a 1.7% increase in membership to 18,374 members (2009/10 –

18,050). At the end of financial year 2010-11, the Fund had 3 Schedule bodies and 16 Admitted bodies

participating in the Fund.

Pension Fund Investment Panel – Members Representatives

The Fund members were balloted in December 2010 to elect staff and pensioners representatives to

the Pension Fund Investment Panel. Two existing representatives, Paul Martin and Joseph Nartey

stood for elections and were re-elected to the post of pensioner and staff representatives.

Also two new representatives, Kathryn Crockford and Lesley Wood were appointed to the post of staff

and pensioners representatives respectively. For the elected staff representatives, Officers of the Fund

conducted an introductory session to Pensions investment management and administration as part of

the Knowledge and Skills Framework for PFIP Members.

Mike Suarez

Executive Director of Finance and Resources

September 2011


5

MANAGEMENT STRUCTURE – 31 March 2011

Administering Authority: London Borough of Lambeth

Administrator: Mike Suarez

Pension Fund Investment Panel: Cllr David Malley (Chair)

Cllr Adrian Garden

Cllr Christine Barratt

Cllr Neil Sabharwal (Vice- Chair)

Cllr Peter Truesdale

Cllr Julia Memery

Employee Representatives: Mr. Peter Woodward (Trade Union)

Mr. Joseph Nartey

Ms. Kathryn Rockford

Pensioners Representatives: Mr. Paul Martin

Mr. Lesley Wood

Council Officers: Mike Suarez - Executive Director of Finance & Resources

Jonathan Williams - Divisional Director of Corporate Finance

Harry S Musisi - Treasury & Pension Fund Manager

Shida Ashrafi - Head of Payroll, Pension & Staff Support

Olu Akinrinmade - Senior Pension Fund Accountant

Actuary: Hymans Robertson LLP

Bank: National Westminster Bank Plc

Legal Advisors: Council Lawyers


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MANAGEMENT STRUCTURE - Continued

Fund Managers: Aberdeen Asset Management

Adam Street Partnership

Baillie Gifford & Co

BlueCrest Capital Management LLP

Deutsche Bank Alex. Brown (Venture Capital)

Invesco Perpetual

Majedie Asset Management

MFS Investment Management

Pacific Alternative Asset Management Company(PAAMCO)

Principal Global Investors

Standard Life

RREEF

UBS Asset Management

Advisers: Mercer Ltd.

Xafinity Consulting Ltd

AVC Providers: Prudential

Clerical Medical

Equitable Life

Custodians: JP Morgan

State Street

Auditor: Deloitte LLP,UK


7

Governance Compliance Statement

This is the Governance Policy Statement of London Borough of Lambeth Pension Fund administered by the London Borough of Lambeth (“the Administering Authority”).The Local Government Pension Scheme (Amendment) (No 2) Regulations 2005 require administering authorities to prepare and maintain a separate written statement of governance policy on pension fund matters. Governance is the leadership, direction and control of organisations to ensure they achieve their aims and objectives. In public service organisations particularly these processes need to be clear and open to scrutiny.

Delegation of Pension Fund Management and Administration Pension Fund Investment Panel The Pension Fund Investment Panel (“the Panel”) is appointed at the beginning of the administration year by the Corporate Committee as quasi trustee of the Pension Fund. Subject to the Council’s Scheme of Delegation, to discharge the Council’s functions in relation to the Local Government Pension Scheme, the Council delegates its responsibility for the administration of the Fund to the Lambeth Pension Fund Investment Panel, which is the formal decision making body of the Fund. The terms of reference for the Lambeth Pension Fund Investment Panel are as follows:

1. Determining the overall investment strategy in accordance with the Local Government Pension Scheme Regulations and subject to approval by the Corporate Committee, ensuring that the Fund is invested in suitable types of investments and sufficiently diversified having regard to its investment objectives.

2. Determining the Statement of Investment Principles, subject to approval by the Corporate Committee and modification as appropriate.

3. Ensuring adequate monitoring and compliance with the overall investment strategy and the Statement of Investment Principles.

4. To make recommendations to Corporate Committee with regard to the appointment of investment managers and any external service providers and advisors felt to be necessary.

5. Maintaining effective arrangements for reviewing on a regular basis investment manager performance against established benchmarks and being satisfied as to manager expertise and the quality of their internal systems.

In accordance with those recommendations made by the CIPFA and the Myners Report, the Panel comprise of the following:

• Three elected Members, one of whom is from the Executive.

• Employees Representatives.

• Representatives from Trade Unions.

• Representatives of Pensioners from the Fund.


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In accordance with Best Practice, only elected members have voting rights. Pensioner and staff representatives have been elected for a term of 3 years by a ballot of members of the Fund.

Provision is made for Members to undergo training sessions to assist them in making informed

investment decisions and to keep them informed on other matters concerning the Local Government

Pension Scheme.

At all times, the Panel must discharge its responsibility in the best interests of the Lambeth Pension

Fund. The Panel meets formally each quarter at the Lambeth Town Hall and attendance at these

meetings during the year was 71% for the voting members and 72% for the non voting members.

Pension Fund Investment Panel Meetings

The Pension Fund Investment Panel usually meets quarterly; additional meetings are convened as and

when required. Notice of the meeting is sent to all members of the Council and Members sit as

Borough-wide representatives, and where necessary, declare any ward interest.

A yearly calendar detailing the times and venue of the Panels meeting is also posted on the Council's

website.

Panel meetings are held in the evenings at the Town Hall Brixton and are open to members of the

public. The investment managers make presentations to the Panel at quarterly meetings on the Fund

performance, implementation of the investment policy and any other developments. Reports to the

Pension Fund Investment Panel are published on the Council’s website.

Advice and Monitoring

The Pension Fund Investment Panel is advised by the Executive Director of Finance and Resources,

the Executive Director of Law and Administration, the Fund’s investment consultant and the Fund’s

investment managers. The Executive Director of Finance is responsible for ensuring that the in-house

team is providing adequate support to the Panel.

In between Panel meetings, the fund managers report to the Executive Director of Finance and

Resources on investment performance and the implementation of the investment policy.

The Fund’s procedures are subject to audit and scrutiny by both the Council’s internal audit team and

by its external auditor Deloitte LLP.


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COMMUNICATION

The Pension Fund realises how important communication with all members and Scheme Employers is

and maintains a high level of communication at all times. The Fund’s Communications Policy Statement

formalises the processes by which this will be achieved. The full version of the policy statement is

available on the Fund’s website at www.lambeth.gov.uk/pensions.

The Fund uses the following ways to provide the up to date and accurate information to its members.

Website

The Fund’s dedicated website has all the relevant information on joining the Pension Fund, Fund

performance, and latest change in LGPS Regulations.

Annual Reports The Lambeth Pension Fund Annual Report will be available to all Scheme Employers. The Annual Report has the Fund Statement of Account for the year ended 31 March and more valuable information on Fund operations. The annual report is available also on the Fund webpage.

Annual Conference The Lambeth Pension Fund and Pension Administration jointly have the annual employees and employers conference. This is a great opportunity for the members to raise their concerns and the Fund uses this event to update its members on Fund performance, upcoming regulation and fund

management.

Annual Benefit Statements

The Lambeth Pension Fund sends out Annual Benefit Statements to all active and deferred members.

This statement gives detail on their pension benefits. It is hoped that our members find them a useful

aid in assessing the benefits they have accrued and their prospective benefits at retirement. The Fund

plans to continue improving and updating the statements to ensure the information provided is

accurate, clear and understandable.

Contact Details:

Pension Administration

Lambeth Pension Services

8th Floor, Phoenix House

10 Wandsworth Road

Vauxhall

London SW8 2LL

Telephone: 0207 926 9572

email: [email protected]

Investment Administration

Treasury

1st Floor, Olive Morris House

18, Brixton Hill,

Brixton

London SW2 1RL

Telephone: 0207 926 9340

email: [email protected]

Website: www.lambeth.gov.uk/pensions


10

RISK MANAGEMENT

The Pension Fund Investment Panel (PFIP) has overall responsibility for internal controls and risk

management. The panel is committed to identifying, evaluating and managing risk and to implementing

and maintaining control procedures to reduce significant risks to an acceptable level. In order to meet

this responsibility a Risk Register has been developed. The register identifies the key risks that the

Fund is exposed to and, having evaluated the impact of the risk on the Fund’s objectives, states the

actions taken to mitigate and effectively manage the risk.

Investment Risks

The Statement of Investment Policy is the main tool by which the Fund controls investment risk. One of

the principal ways in which the Fund manages risk is through diversification of assets and managers.

The provision of expert advice is crucial to the decision-making and risk management processes. The

PFIP knowledge must be sufficient for advice to be challenged and understood. To facilitate this, the

Fund is committed to training and the Panel members are required to attend external training courses

and internal workshops to aid them to discharge their duties.

The investment management process is outsourced to third parties, specifically investment managers

and custodians. This arrangement provides a clear segregation of duties within the Fund, with the in-

house investment team closely monitoring compliance with regulations and mandates. The Fund

investment adviser, Mercer Limited, monitors the performance of the Fund and managers and reports to

the PFIP on a quarterly basis.

Financial Risks

The Fund’s financial management framework is the same as the Council’s and is reviewed by the PFIP.

The budget, which is set annually as part of the three year forward looking service plan, is monitored by

the Panel. The financial accounting system is integrated with the Council’s and the segregation of

duties and control structure is agreed with and annually reviewed by Internal Audit. A key financial risk

is the non-payment of contributions by employers. The regulations provide a sanction for late

payments, and processes are in place to ensure that contributions are reconciled regularly.

Benefits Administration Risks

The administration risks relate mainly to the inability of the Administrator to meet its obligations to

administer the Fund and pay benefits accurately and on time as agreed with employers or under

statute. The main areas of risk are non-payment or late payment of members’ benefits or incorrect

calculation of benefits; breach of Data Protection Regulations and failure to comply with Freedom of

Information Act requests or Disclosure of Information requirements. Such risks can lead to adverse

publicity, loss of reputation and ultimately statutory fines. These are addressed in the Business

Continuity Plan (see below) and mitigated in the Risk Register which is reviewed annually by the

Administering Authority and updated as necessary.

Business Continuity Plan

An up-to-date Business Continuity Plan is in place mainly to deal with “disaster recovery” and includes

contingency measures. The Plan identifies critical activities whose failure would lead to an

unacceptable loss of service. It also documents and has put in place measures to minimise the risk of

disruption to service and specifies what “triggers” the contingency measures coming into effect.


11

PENSIONS ADMINISTRATION REPORT

Introduction to the Fund

The London Borough of Lambeth Pension Fund is part of the Local Government Pension Scheme

(LGPS). The LGPS is governed by statute. The Lambeth Council is the administering authority for the

Lambeth Pension Fund. Its duties are fulfilled by delegating the necessary powers to the Pension Fund

Investment Panel with day-to-day decision-making undertaken by the Director of Finance and

Resources.

The Scheme is open to all Lambeth Council employees (except teachers and fire fighters who have

their own scheme) and employees of certain other public bodies (known as scheduled bodies) within

Lambeth. The regulations also permit the Lambeth Council to admit to the Fund certain other bodies

providing public services. All local government employees automatically become members of the

scheme unless they choose to opt out.

The table below shows the performance indicators of the pension administration for the year ended 31

March 2011.

Pension Fund Administration

The Pension Fund investment administration team is part of Corporate Finance within Finance and

Resources and it is responsible for the Fund administrations and monitoring of the investment

managers. The team report to the Pension Fund Investment Panel and to the Corporate Committee

every quarter on Fund’s performance. The team is made up of four members and they work together

with the pension administration team to deliver an effective and timely service to its members. The

Fund incurred £856k in total as administration cost during the year 2010/11 (2009/10 - £791k).

Target

Days Total

Within

Target

%Within

Target

Average

Days

STARTERS 10 614 599 97.5 10.25

TV IN (QUOTE) 10 129 106 82.0 11.80

TV IN (ACTUAL) 10 121 103 85.0 11.50

TV OUT (QUOTE) 15 126 101 80.0 18.00

TV OUT (ACTUAL) 12 109 90 83.0 14.04

REFUND 10 7 7 100.0 10.00

PRESERVED BENEFIT 15 347 274 79.0 18.15

ESTIMATE 10 1,606 1,606 100.0 9.50

RETIREMENT 5 164 151 92.0 5.40

DEATH IN SERVICE 5 6 6 100.0 5.00

DEATH ON PENSION 5 185 185 100.0 5.00

QUOTE AVCS 5 24 24 100.0 5.00

QUOTE ARCS 10 6 6 100.0 4.00


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INVESTMENT REPORT

The Pension Fund Investment Panel is responsible for the appointment of external investment

managers, to whom the day-to-day management of the Fund's investments is delegated within

guidelines agreed with the Panel. Each manager has discretion in the selection of its range of

investments, within the parameters of each portfolio, to achieve its performance target. The present

investment structure involves actively managed specialist portfolios for UK equities, overseas equities,

bonds, property and private equity fund allocation. The objective is for the specialist portfolios to add

value by outperforming their respective benchmarks. The benchmarks are measured every quarter.

.

Investment Administration The Fund’s custodians are responsible for the safe-keeping of the Fund’s assets. The custodians act as the Fund’s banks, settling transactions and are responsible for income collection. In addition they provide a range of support services including stock lending and investment accounting. The Fund

currently has two custodians, State Street and JP Morgan. Investment Management Expenses The fund managers are paid quarterly for managing the investments on behalf of Lambeth Pension Fund. The fees are calculated as a percentage on the market value of the fund under management at the end of the relevant quarter. For the year ending 31 March 2011, the Fund paid £2.6m as investment management expenses (2009/10 - £2m).


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INVESTMENT PERFORMANCE The Fund’s performance is measured by the Fund’s investment advisers, Mercer Limited, every quarter. Mercer reviews the performance of the individual fund managers and the Fund as a whole against the set benchmarks and reports to the Pension Fund Investment Panel at its quarterly meetings.

Investment Managers Performance to 31 March 2011

Last Quarter Last Year Since Inception

Manager Fund (%)

Benchmark (%)

Fund (%)

Benchmark (%)

Fund (% p.a.)

Benchmark (% p.a.)

Majedie 1.8 1.0 9.5 8.7 7.3 1.9

Baillie Gifford

2.3 2.1 n/a n/a 18.8 (a)

15.8 (a)

MFS

1.3 2.4 n/a n/a 17.1 (a) 17.0

(a)

UBS (Bonds)

-0.2 -0.3 6.9 6.6 10.0 8.8

Aberdeen (Bonds) 0.3 -0.2 5.6 5.6 5.0 5.0

PAAMCO

2.3 0.2 n/a n/a 7.6 (a) 0.4

(a)

BlueCrest (b) 2.6 0.2 n/a n/a 5.3

(a) 0.4

(a)

UBS (Property)

5.3 2.3 6.3 10.7 11.4 18.0

RREEF (c) -2.0 2.3 -6.2 10.7 n/a n/a

Invesco (b) 4.9 0.2 n/a n/a 7.2

(a) 0.3

(a)

Principal 1.4 0.1 n/a n/a -7.6 (a) 0.3

(a)

Standard Life 0.2 0.2 n/a n/a -0.8 (a) 0.6

(a)

Total (ex-Adams Street)

1.5 0.6 2.1 3.6 1.1 2.0

Inception Date 31 March 2007 for Majedie. 2 September 2010 for Baillie Gifford and MFS. 1 August 2009 for UBS. 31 December 2007 for Aberdeen. 1 September 2010 for PAAMCO and BlueCrest. 11 October 2010 for Invesco. 1 August 2010 for Principal. 31 December 2007 for total Fund.

In the year to 31 March 2011, the Fund’s performance was below its benchmark, delivering a return of

2.1% against the benchmark return of 3.6%. However in the last quarter of the year, the Fund’s returns

improved significantly, ahead of its benchmark. The main contributors for the outperformance were

property investment managers UBS Property and Invesco.

.


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Asset Allocation and Fund Values by Asset Class

The strategic allocations approved in 2008 and reported in the Statement of Investment Principles are

shown as the benchmark allocation in the table below. The strategy has been partly implemented in

the year following the completion of a review of the manager structure. The transition is due to be fully

completed in 2011/12. The Panel monitors any divergence from strategy and rebalances when

appropriate.

The Panel aims to achieve its investment objective by maintaining a high allocation to growth assets,

mainly equities, reflecting the security of the sponsor’s covenant, the funding level, the long time

horizon of the fund and the projected asset class returns and volatility. The Panel monitors the

continued appropriateness of the strategic allocations.

Actual Asset Allocation

Asset Class Start of Year

(£m)

End of Year

(£m)

Start of Year

(%)

End of Year

(%)

Benchmark Allocation

(%)

UK Equity 91.7 92.2 11.7 11.6 11.0

Global Equity 188.8 192.0 24.1 24.0 22.0

Fixed Interest Bonds 118.2 119.2 15.1 14.9 19.1

Index-Linked Bonds 66.6 65.6 8.5 8.2 10.9

Fund of Hedge Funds 76.6 78.1 9.8 9.8 10.0

Currency Overlay 33.1 33.4 4.2 4.2 5.0

Property 40.6 87.5 5.2 11.0 12.0

GARS 36.3 36.2 4.6 4.5 5.0

Private Equity (a) 30.2 27.9 3.9 3.5 5.0

Venture capital 0.2 0.2 0.0 0.0 0.0

Cash (b) 101.3 66.9 12.9 8.4 0.0

Total 783.4 799.2 100.0 100.0 100.0

. Figures may not sum to total due to rounding. (a) Sterling valuations have been estimated using the dollar exchange rate as at 31 December 2010. (b) Cash shows the total cash holding and includes the cash holdings of each manager.


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Asset Allocation

The actual allocations to asset classes (£’000) are shown in the chart below. The Fund held 53% of its investments in Unit trusts, 9% in UK equity, 23% in fixed income securities, and 8% in cash and the remainders in private equity and unit trust property.

Net asset value – Movement

The graph below shows the movements in net assets value of the fund for the past five years. Even

though the Fund lost 23% of the asset in 2009 due to global economic crises, in the following years it

has recovered and increased the net asset value as a result of the recovery of financial markets,

effective fund management and close performance monitoring.


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FINANCIAL PERFORMANCE

As at 31 March 2011, the net assets of the Fund were £778.3m. This shows an increase of £13m from

the previous year. The net assets of £778.3m were made up of the market value of investments of

£746.6m, cash of £52.6m, net current assets of £0.5m and net current liabilities of £21.4m. The table

below shows the financial summary for the year.

2010-11 2009-10 Financial Summary

£,000 £,000

Contributions Received 53,208 48,714

Other Income 9 8

53,217 48,722

Benefits Payable 39,626 37,918

Other Expenditure 11,385 7,022

51,011 44,940 Net additions / withdrawals from dealing with members 2,206 3,782

Investment Income (net of fees) 32,867 21,137

Change in Market Value of Investments (21,889) 199,352 Net Return on Investments 10,978 220,489

Change in Fund Value During The Year 13,184 224,271

Net Assets at 31 March (Market Value) 778,272 765,088 Contributing Employers

The 5,151 contributing members of the Fund as at 31 March 2011 are from the following participating employers. The table below details the members and the total contributions paid by each employer in the year.

Employer Contributing

Members Contribution

£,000

Administrative Body

London Borough of Lambeth 4,741 17,697

Scheduled Body

Lambeth Academy 33 111

Evelyn Grace Academy 11 39

Lambeth Living 308 2,662

Admitted Bodies

Hyde Housing Association 4 68

Research Machines PLC 1 4

Metropolitan Housing Trust 20 9 St’Martin’s Community Partners 0 0

Age Concern Lambeth 1 23

Wellington Mills TMO 1 7

United Resident Housing 6 40

Community Trust Housing 10 78

Excel Care Holding Plc 6 28

Metra Housing Co-Operative 2 14

Ethelred TMO 1 6

Blenheim Gardens RMO 8 49

Thorlands Action Group Ltd 1 5

PACCA TMO 3 10

Turners Cleaning and Support Services 4 5

Pitney Bowes Limited 8 16

Total 5,151 20,871


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FINANCIAL STATEMENTS

2010/11 2009/10

Note £’000 £’000 £’000 £’000 Contributions And Benefits Contributions:

7a

From employers 35,868 33,735 From members 8,407 8,136 Transfers in 8,933 6,843

Income re equivalent contribution scheme

9

8

53,217 48,722

Benefits:

7b

Pensions (33,092) (32,147)

Commutations and lump sum retirement benefits

(6,534)

(5,771)

(39,626) (37,918)

Leavers Refunds to members leaving service (33) (51) Transfers out – Individuals (10,494) (6,177) State Scheme Premiums (2) (3)

(10,529) (6,231)

Administrative And Other Expenses Borne By the Scheme

3

(856)

(791)

(51,011) (44,940)

Net investments from dealings with members

2,206

3,782

Returns on investments

Investment income 6 35,510 23,132 Change in market value of investments (21,889) 199,352 Investment management expenses (2,643) (1,995)

Net return on investments 10,978 220,489

Net increase in the Fund during the year

13,184

224,271

Opening net assets of the scheme 765,088 540,817

Closing net assets of the scheme 778,272 765,088


18

Note

Valuation

2010/11

2009/10

NET ASSETS STATEMENT £’000 £’000

Investment Assets 12

UK Fixed interest securities

Market Value

119,154

97,307

UK equities (shares) – quoted Market Value 73,664 256,769

Overseas equities (shares) – quoted Market Value 9,023 297,894

UK Index Linked Securities Market Value 65,632 48,620

Cash Deposits 14,380 29,103

Pooled Investment Vehicles

Managed Funds Market Value 9,348 9,476

Unit trusts Market Value 419,911 0

UK unit trusts – property Market Value 7,377 20,161

Private Equity Market Value 27,948 22,241

Venture capital funds Market Value 206 245

746,643 781,816 Current Assets

Futures – Forward contracts 0 246

Investment income accrued 431 1,978

Inland Revenue – tax claims 59 59

Due from London Borough of Lambeth

0 6

Cash at Bank 52,577 0

53,067 2,289

Current Liabilities

Futures 0 (27)

Inland Revenue (10) (25)

Due to London Borough of Lambeth (21,428) (18,965)

(21,438) (19,017)

Net assets of the scheme available to fund benefits at 31 March

778,272 765,088

The financial statements summarise the transactions of the Fund and the net assets. They do not take account of obligations to pay pensions and benefits which fall due after the end of the fund year. This statement should be in conjunction with the statement by the consulting actuary (on page 31) which details the actuarial position of the Fund including obligations to pay pensions and benefits which falls due after the year end.

Mike Suarez Executive Director of Finance and Resources 13 September 2011


19

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of Preparation

The accounts have been compiled in accordance the CIPFA code of practice on local authority accounting in the United Kingdom 2010/11 and following the guidance in the Statement of Recommended Practice “Financial Reports of Pension Schemes” (revised May 2007) (“the SORP”). The accounting policies have been drawn up in line with recommended accounting principles as specified in the Code of Practice on Local Authority Accounting and as disclosed below. 2. Operation and Membership of the Fund

The London Borough of Lambeth Pension Fund is a funded, defined benefit scheme. The objective of the fund is to provide secure future income for Council employees and employees of outside organisations, who have entered into an agreement with Lambeth for pension purposes. As at 31 March 2011, the outside bodies who had entered into agreement with Lambeth for pension are:- Age Concern Lambeth, Hyde Housing Association, Thorlands Action Group Ltd, Excel Care Holdings plc, Blenheim Gardens RMO, Metra Housing Co-operative, Research Machines plc, Wellington Mills Housing Co-op, PACCA TMO, Turners Cleaning and Support Services, Pitney Bowes Ltd, Etherled TMO, St.Martins Community Partners, Community Trust Housing, Metropolitan Housing Trust and United Resident Housing were admitted bodies: Evelyn Grace Academy, Lambeth Academy and Lambeth Living were schedule bodies

The Pension Regulations specify which employees are eligible for membership and the service that is reckonable for benefit purposes. They also set out various rules for payment of contributions, calculation of benefits and refunds, as well as arrangements for the transfer values to and from other funds and schemes. With the passing of the Social Security Act 1986, the compulsory requirement for membership was removed and employees now have the right to choose whether or not to be members. Under current legislation, pension contributions qualify for full tax relief. The Fund is also contracted out of the Government State Second Pension Scheme. The compulsory retirement age for both male and female contributors is 65; however, earlier retirement with payment of benefits can be made under certain circumstances. Pensions payable to members who retire on ill health grounds and to members’ spouses and children are increased in line with the Consumer Price Index. Pensions payable to other members who have reached the age of 55 also benefit from annual inflation proofing. Membership in the fund as at 31 March 2011 was made up of 5,151 active members (5,115 in 2009/10) who paid contributions to the fund; 6,581 pensioners (6,518 in 2009/10) who were paid by the fund and there were 6,642 deferred pensioners (6,417 in 2009/10). The table below provides a breakdown: Employer Active Deferred Pensioner

Administrative Body

London Borough of Lambeth 4741 6,510 6,536

Scheduled Body

Lambeth Academy 33 31 1

Evelyn Grace Academy 11 5 0

Lambeth Living 308 43 17

Admitted Bodies

Hyde Housing 4 15 10

Research Machines PLC 1 1 0

Metropolitan Housing Trust 2 3 2

Age Concern 1 4 6

Wellington Mills 1 0 0

United Resident Housing 6 1 0

Community Trust Housing 10 1 3

Excel Care 6 6 4

St Martin’s Community Partners 0 2 0

Metra Housing Co-Op 2 4 0

Ethelred TMO 1 9 0

Blenheim Gardens 8 2 0

Thorlands Action Group LTD 1 5 2

PACCA TMO 3 0 0

Turners Cleaning and Support 4 0 0

Pitney Bowes 8 0 0

Total 5,151 6,642 6,581


20

3. Fund Administration and Management

The Fund is administered in accordance with the Local Government Pension Scheme (LGPS) Regulations 1997 and the LGPS (Management and Investment of Funds) Regulations 1998. Pension Fund administration (administrative expenses in the pension fund account) is carried out in house, while custodial arrangements and fund investment management is mainly outsourced to external investment managers (investment management expenses in the pension fund account) under the guidance of Lambeth's Pension Fund Investment Panel. The investment portfolio is managed by the fund managers under the Statement of Investment Principles laid down by the Council.

2010/11 2009/10 Administrative Expenses

£’000 £’000

These comprise: Pensions Administration 488 509 Pension Fund Administration 254 186 Additional Central Overhead Recharges (BVACOP) 114 96

856 791

4. Accounting Policies Accruals Concept

Unless otherwise stated, the accounts have been prepared on an accruals basis. The transfer values have been accounted on a cash basis (see transfer values policy below) and the administrative expenses are based on actual spending for the year for the pension administration and pension fund administration. The basis of preparation is consistent with last year. Comparative information has been disclosed as much as possible unless where comparative information is not available and it is impracticable to obtain or estimate in accordance with paragraph 104 of FRS 26. Valuation of Investments

• Overseas securities and cash are translated into sterling using prevailing rates of exchange at the balance sheet date.

• Unlisted securities are valued having regard to latest dealings, professional valuations, asset values, currency rates and other appropriate financial information adjusted to reflect cash transactions up to 31 March 2011.

• All listed investments are quoted at the bid price at the close of business on 31 March of each financial year.

• Investments in pooled investment vehicles are stated at the bid value of the latest prices quoted by their respective managers, or if single priced, at the closing single price.

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. Most investments are in pooled funds where the change in market value will reflect investment income earned by the fund and fees and expenses charged to the fund.

Investment expenses

Regulations published in 1989 permit the Council to charge administration costs to the Pension Fund. A proportion of the relevant Council officers’ salaries, including related on-costs, have been charged to the Fund based on estimated time spent on Fund administration and investment related business. The fees of the Fund’s investment managers have been accounted for on the basis contained within their respective management agreements.

Contributions

Contributions represent the total amount receivable from the various employers participating in the Fund in respect of their own contributions and those of their pensionable employees. The employers’ contributions are made at rates determined by the Fund Actuary. Benefits and Refunds

Benefits and refunds are accounted for in the year in which they become due for payment. Transfer Values

Transfer values are those funds paid to or received from other pension schemes for individuals and relate to periods of previous pensionable employment. Transfer values received and transfer values paid are accounted for on a receipts and payments basis. Final Transfer amounts can vary by interest added thereon depending on the date of settlement. Pension Increases

Under the Pensions (Increase) Acts, from 1 April 1990, pension increase payments (indexing of pension payments) are to be met from the Pension Fund. Prior to this date they were met from the General Fund.


21

Administrative Expenses Certain specific expenses have been charged directly to the Fund and other office expenses and related overheads have been charged to the Fund in proportion to staff head count. Salaries of the relevant officers have been charged to the Fund on the basis of actual time spent on investment and related matters and pension administration. 5. Actuarial Valuation

The Fund's assets and liabilities are valued by an external actuary every three years. The latest valuation was carried out by Hymans Robertson LLP as at 31 March 2010. Valuation Assumptions

The valuation method used was the Projected Unit Method. The following financial assumptions formed the basis of the valuation:

• Rate of price inflation at 3.3% per annum

• Rate of future pension increases at 3.3% per annum

• Rate of future pay increases at 5.3% per annum*

• Discount rate at 6.1%. (*1% p.a. for 2010/11, 2011/12, reverting to 5.3% p.a. thereafter) At 31 March 2010, the scheme's assets were £765m and the actuarial value of the assets was sufficient to cover 72.5% of the benefits that had accrued to members, after allowing for expected future increases in earnings. In order to achieve 100% coverage by the end of the average expected working lifetime of the current contributors, an employer's contribution rate of 16.8% per annum of payroll, plus an additional monetary sum of £16m per annum, based on the assumption that the deficit is funded over 20 years from the 1st April 2011. 6. Investment Income

2010/11 2009/10

£’000 £’000

Interest on cash deposits 470 2,035

Dividends from Equities 11,988 18,378

Receipts, capital movements and disbursements 89 (1,600)

Other 22,963 4,319

35,510 23,132

7. Total Contributions

a) Contributions from Employers 2010/11 2009/10

£’000 £’000 Normal 20,871 20,216

Reimbursement of early retirement cost 1,847 959

Deficit Funding 13,150 12,560

35,868 33,735

b)Total Contributions Received and Benefits Paid (2010/11)

Administering Body (Lambeth)

Scheduled Bodies Admitted Bodies

£’000 £’000 £’000

Contributions received 32,694 2,812 362

Benefits paid 39,506 120 0

8. Security Lending

As at 31 March 2011 the Fund had £2.25m collateral value of stock released to third parties under stock lending arrangement. Description of the related collateral is available on file. The stock lending programme is executed only on the UK Equity Portfolio. 9. Statement of Investment Principles

A copy of the statement of investment principles can be obtained by contacting the London Borough of Lambeth Pension Fund or via the corporate website www.lambeth.gov.uk/pensions.


22

10. Market Value of Assets and Proportion Managed by each Fund Manager

As at 31 March 2011, the total market value of the investments of the Fund was £746.6m (£781.8m as at 31 March 2010). Of this 13.4% is managed by Aberdeen Asset Management, 16.3% by UBS Global Asset Management, 13.0% by Majedie Asset Management, and 57.0% in unit trust by various managers and the other managers invested the remainder in Venture Capital Funds and Property, including an investment of £27.9m (3.78%) made in Private Equity with Adams Street Partners. The table below shows the breakdown of the investments at market value between the managers. Private Equity investment is valued at latest available estimated valuation - 31 March 2011. Overall, the Fund has committed 5% of the market value of the Pension fund to be invested in private equity.

UK

Equities Pool

Funds

UK Unit Trusts-

Property

UK Fixed Interest

UK Fixed Interest

Non Govt

UK Index Linked

Overseas Equities

Private Equity

Unit trust

Venture Capital Funds

Cash

Total

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

Aberdeen - Fixed 56,704 14,362 48 71,114

Adam Street 27,948 27,948

Baillie Gifford 97,513 97,513

Blue Crest 22,993 22,993

Invesco 79,996 908 80,904

Majedie 73,645 9,348 9,023 4,074 96,090

MFS 94,465 94,465

PAAMCO 55,177 55,177

Principal 33,463 33,463

RREEF 2,155 42 2,197

Standard Life 36,304 36,304

UBS 19 78 97

UBS - Bonds 27,971 34,479 51,270 113,720

UBS – Property 5,222 1,162 6,384

Deutsche Bank 206 206

State Street 8,068 8,068

TOTAL 73,664 9,348 7,377 27,971 91,183 65,632 9,023 27,948 419,911 206 14,380 746,643


23

10. Market Value of Assets and Proportion Managed by Each Fund Manager (Continued) a) Reconciliation between opening and closing value of investments

Investment Managers Opening balance Purchases Sales Realised

gain/(loss) Transfer in/out

of Fund Unrealised gain/(loss)

Closing balance Movement

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

£’000

Aberdeen – Bonds 67,592 5,301 (2,791) 166 0 798 71,066 3,474

Aberdeen - Global 104,412 8,555 (4,708) 558 (85,679) (23,138) 0 (104,412)

Adams Street 22,241 4,338 0 0 0 1,368 27,947 5,706

Alliance Bernstein 137,574 33,698 (32,523) (102) (119,546) (19,101) 0 (137,574)

Baillie Gifford 0 0 0 0 82,051 15,463 97,514 97,514

Blue Crest 0 0 0 0 22,100 893 22,993 22,993

Invesco 0 0 0 0 76,836 3,160 79,996 79,996

Majedie 66,028 56,721 (37,772) 5,317 0 1,722 92,016 25,988

MFS 0 38 0 0 80,957 13,470 94,465 94,465

PAAMCO 0 0 0 0 51,500 3,674 55,177 55,177

Principal 0 0 0 0 36,760 (3,298) 33,462 33,462

RREEF 2,480 0 (189) 0 0 (136) 2,155 (325)

Standard Life 0 0 0 0 36,800 (496) 36,304 36,304

UBS 256,125 34,492 (62,090) 10,681 (198,734) (40,456) 19 (256,106)

UBS-Bonds 78,335 30,000 (2,100) 113 0 7,373 113,721 35,386

UBS-Property 17,681 0 (12,577) (3,261) 0 3,379 5,222 (12,459) Venture capital Cash

245 29,103

0 0

0 0

0 0

0 0

(39) 0

206 14,380

(39) (14,723)

TOTAL 781,816 173,143 (154,750) 13,472 (16,955) (35,364) 746,643 (35,173)

24

b) Direct transaction costs Fund Manager

£'000

Majedie

293

UBS 237 Alliance Bernstein 583 Aberdeen 261

TOTAL 1,374

Transaction costs are incremental costs that are directly attributable to the acquisition or disposal of an investment. An incremental cost is one that would not have been incurred if the scheme had not acquired or disposed of the investment. Transaction costs include fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administration or holding cost. The amount of indirect costs is not separately provided to the Fund.

11. Additional Voluntary Contribution (AVC)

According to regulation 5(2) (C) of the Pension Scheme (Management and Investment of Funds) Regulation 1998, the Additional Voluntary Contributions are not included in the Pension Fund Accounts. The AVCs are invested separately and the table below shows the details, the contributions received and the value of the investments as at 31 March 2011. Name

Total contribution (£'000)

Value of fund (£'000)

Prudential

346

736

Equitable Life 17 513 Clerical Medical 30 158 Total 393 1,407

12. Investments

At 31 March 2011, the Fund's 20 largest investments were:-

2010/11 2009/2010

£’000 % of Fund

£’000 % of Fund

UBS Life UK 15 Year Index Linked Gilt Tracker Fund A Units 51,270 6.59 35,096 4.65

Aberdeen Core Plus Sterling Bond Fund 1-2 GBP ACC 36,041 4.63 22,353 2.96

UBS Life UK 15 Year Gilt Tracker Fund A Units 27,971 3.59 19,175 2.54

UBS Life Duration Neutral UK Long dated Corp Bond A UNITS 25,152 3.23 17,458 2.31

Aberdeen Fund Core Plus Sterling Credit Fund 1-2 GBP ACC 20,663 2.65 31,716 4.2

Aberdeen Fund Core Plus Index Linked Bond Fund 1-2 GBP ACC 14,362 1.85 13,524 1.79

Majedie Asset Management SPEC SITS INV B NAV 9,348 1.20 5,172 0.69

UBS Life Duration Neutral UK Corp Bond A UNITS 9,327 1.20 0 0

Royal Dutch Shell 'B'SHS EUR0.07 8,682 1.12 15,470 2.05

Vodafone Group ORD USD0.11428571 7,381 0.95 19,815 2.63

BP PLC ORD USD 0.25 6,960 0.89 20,502 2.72

GlaxoSmithKline ORD GBP0.25 6,804 0.87 13,865 1.84

UBS Life Real Estate Securities Fund A 5,222 0.67 0 0

HSBC Holdings ORD USD0.50(UK REG) 4,660 0.60 16,187 2.14

Astrazeneca ORD USD 0.25 3,662 0.47 0 0

Unilever PLC ORD GBP 0.003 3,635 0.47 0 0

BAE SYSTEMS ORD GP 0.025 3,231 0.42 0 0

Pearson ORD GBP 0.25 3,198 0.41 0 0

National Grid Plc new ORD GBP 0.11395 2,447 0.31 0 0

BG GROUP PLC ORD GBP 0.10 2,226 0.29 0 0

252,242 32.41 230,333 30.52


25

The table below shows a detailed breakdown of the investments held by the Pension Fund (excluding cash) at the end of 2010/11 and 2009/10:

2010/11 2009/10

£’000 £’000 £’000 £’000

UK EQUITIES

Resources

Mining 3,844 28,659

Oil & Gas 9,186 46,863

Basic Industries

Chemicals 0 805

Construction and building materials 166 1,631

Diversified industrials 0 0

Forestry and paper 0 216

General Industrials

General Industrial 135 0

Industrial Engineering 364 0

Aerospace and defence 3,652 6,700

Electronic and electrical equipment 0 1,239

Engineering and machinery 0 3,159

Cyclical Consumer Goods

Automobiles and parts 0 858

Household goods and textiles 0 713

Non-Cyclical Consumer Goods

Beverages 0 5,363

Food producers and processors 0 8,599

Health 1,536 217

Pharmaceuticals 10,466 21,157

Personal care and household products 256 0

Tobacco 0 9,337

Cyclical Services

General retailers 2,908 5,449

Leisure, entertainment and hotels 1,450 4,761

Media and photography 3,697 8,037

Support services 5,047 8,904

Transport 0 2,941

Non-Cyclical Services

Food and Beverage 3,635 8,435

Telecommunication services 7,611 20,242

Utilities

Electricity 1,333 1,859

Gas Water & Multi-utilities 3,795 6,293

Financials

Banks 5,156 31,235

Insurance 3,445 2,621

Life assurance 1,084 5,904

Real estate 392 2,520

Financial General 2,708 7,249

Information Technology

Information technology hardware 747 1,111

Software and computer services 1,051 3,693

Total UK Equities 73,664 256,769

POOLED INVESTMENT VEHICLES

Pooled Funds 9,348 9,476

Unit Trust 419,911 0

Total Unit Trusts

429,259 9,476


26

2010/11 2009/10

£’000 £’000 £’000 £’000

OVERSEAS EQUITIES

United States 341 101,704

Japan 0 36,280

Europe 8,682 89,231

Pacific Region 0 37,797

Developing markets 0 32,882

Total Overseas Equities 9,023 297,894

Fixed Interest Securities UK – Public Sector quoted 27,971 19,175

Fixed Interest Securities UK – Corporate quoted 91,183 78,132

Index Linked Securities UK – Corporate quoted 65,632 48,620

UK Unit Trusts - Property 7,377 20,161

Private Equity 27,948 22,241

Venture Capital Funds 206 245

Cash Deposits 14,380 29,103

Total Value of Investments 746,643 781,816

During the year the Fund purchased investments totalling £173.1m (2009/10 - £325.2m) and sold investments to the value of £154.8m (2009/10 - £328.7m). The realised profit amounted to £13.5m (2009/10 £11.2m Profit).

13. Related Party Transactions The Fund is required under IAS 24 to disclose details of material transactions with related parties.

Name

2010/11 (£'000)

2009/10 (£'000)

Administration expenses paid to the council

856

791

Short term borrowings (21,428) (18,965)

The Council is a related party to the Pension fund. Details of the expenses refunded to the Council are set out above. Details of total contributions made in the year are set out in note 7 to the accounts. 14. IFRS Recognition

Under paragraph 6.5.2.9 of the IFRS Code - IAS 26 requires the ‘actuarial present value of promised retirement benefits’ to be disclosed. The information is included in the accompanying actuarial report on page 27.


27

ACTUARIAL VALUATION OF RETIREMENT BENEFITS

Pension Fund Accounts Reporting Requirements

Introduction

CIPFA’s code of practice on Local Authority Accounting 2010/11 requires administrating authorities of LGPS

funds that prepare Pension fund accounts to disclose what IAS26 refers to as the actuarial present value of

promised retirement benefits. This change is one of many which are being adopted by employers reporting

under CIPFA guidance in the financial year 2010/11

The actuarial present value of promised retirement benefits is to be calculated similarly to the defined benefit

obligation under IAS19.There are three options for its disclosure in pension fund accounts:

• showing the figure in the Net Assets Statement, in which case it requires the statement to disclose the

resulting surplus or deficit;

• as a note to the accounts; or

• by reference to this information in an accompanying actuarial report.

If an actuarial valuation has not been prepared at the date of the financial statements, IAS26 requires the most

recent valuation to be used as a base and the date of the valuation disclosed. The valuation should be carried

out using assumptions in line with IAS19 and not the Pension Fund’s funding assumptions.

In order for Administering Authority to comply, I have provided the information required below.

Assumptions

The assumptions Used are those adopted for the Administering Authority’s FRS17/IAS19 reports at each year

end as required by the Code of Practice. These can be found at the end of this report.

Balance Sheet

Year ended 31 Mar 2011 31 Mar 2010

£m £m

Present Value of Promised Retirement Benefits 1,146 1,222

Liabilities have been projected using a roll forward approximation from the latest formal funding valuation as at

31 March 2010. I estimate this liability at 31 March 2011 comprises £373m in respect of employee members,

£313m in respect of deferred pensioners and £460m in respect of pensioners. The approximation involved in

the roll forward model means that the split of scheme liabilities between the three classes of member may not

be reliable. However, I am satisfied the aggregate liability is a reasonable estimate of the actuarial present

value of benefit promises. I have not made any allowances for unfunded benefits.

It should be noted the above figures are appropriate for the Administering Authority only for preparation of the

accounts of the Pension Fund. They should not be used for any other purpose (i.e. comparing against liability

measures on a funding basis or a cessation basis).


28

Financial assumptions

My recommended financial assumptions are summarised below:

Year Ended: 31 Mar 2011 #N/A

% p.a. % p.a.

Inflation / Pension Increase Rate 2.8% 3.8%

Salary Increase Rate* 5.1% 5.3% Discount Rate 5.5% 5.5%

*Salary increases are 1% p.a. nominal for the year to 31 March 2011 and the year to 31 March 2012

Mortality

As discussed in the accompanying report, life expectancy is based on the SAPS year of birth tables with

improvements from 2007 in line with the Medium Cohort and a 1% p.a. underpin. Mortality loadings were

applied to the SAPS tables based on membership class. Based on these assumptions, the average future life

expectancies at age 65 are summaries below:

Males Females

Current Pensioners 20.1 years 22.9 years

Future Pensioners 22.0 years 24.8 years

*Future pensioners are assumed to be aged 45 at 31 March 2010

Historic mortality

Life expectancies for the below year ends are based on the PFA92 and PMA92 tables. The allowance for future

life expectancies are shown in the table below.

Year ended Prospective Pensioners Pensioners

31 March 2010 year of birth, medium cohort and 1% p.a. minimum improvements from

2007

year of birth, medium cohort and 1% p.a. minimum improvements from

2007

Age ratings and loadings are applied to the above tables based on membership profile.

Commutation

An allowance is included for future retirements to elect to take 25% maximum additional tax-free cash up to

HMRC limits for pre-April 2008 service and 63% of the maximum tax-free cash for post-April 2008 service.

Perter Summers FFA

25 May 2011


29

FUNDING STRATEGY STATEMENT

The Funding Strategy Statement has been prepared by the Administering Authority in collaboration

with the Fund’s actuary Hymans Robertson, and after consultation with the Fund’s employers and

investment adviser. This statement covers the Fund and its policies in respect of the following areas:

• Purpose of the Pension Fund.

• Aims of the funding policy.

• Solvency issues and target funding levels.

• Identification of risks and counter measures.

• Links to investment policy set out in the Statement of Investment Principles.

The full version of the funding strategy statement is available on the Pension Fund’s website at

www.lambeth.gov.uk/pensions.

STATEMENT OF INVESTMENT PRINCIPLES

The Lambeth Council is responsible for administering the Lambeth Pension Fund under the Local

Government Pension Scheme (LGPS) Regulations.

The Council has a duty to ensure that scheme funds not immediately required to pay pension benefits

are suitably invested and to take proper advice in the execution of this function. It has delegated

responsibilities to the Investment Panel.

The statement was made in accordance with regulation 5 of the Local Government Pension Scheme

Regulation 1999. In preparing this statement, the panel has taken professional advice from the

investment practice of Xafinity Consulting Limited. The statement is subject to periodic review and it

was last reviewed and updated in November 2008. The statement covers:-

• Funding objective.

• Investment objectives and ways to achieve.

• Social responsible investment.

• Exercise of voting rights.

• Asset allocation by fund manager. The full version of the Statement of Investment Principles is available on the Pension Fund’s website at www.lambeth.gov.uk/pensions.


30

.

COMPLIANCE STATEMENT The purpose of this Compliance Statement is primarily to disclose some additional information required by law but which is not considered to be of such significance to Members.

Taxation

The Fund is approved under the Income and Corporation Taxes Act 1988. Although exempt from UK

income and capital gains taxes, the Fund is unable to recover the tax credit on UK dividends.

Statement of Investment Principles

In accordance with the Pension Act 1995, the Fund has produced a Statement of Investment

Principles which is reviewed at intervals of not more than three years; copies are available on request

or can be accessed from the Fund website.

Transfer Values

Transfer values for Members leaving pensionable service during the year were calculated in

accordance with the Pension Schemes Act 1993, (as amended by the Pensions Act 1995). No

transfer values were reduced because of under-funding. The Rules of the Fund have always provided

that deferred pensioners may transfer the value of their benefits to another approved scheme at any

time before any benefits have been paid from the Fund.

Pension Increases

The pension increases were implemented as per pension increase (Review) Order 2009 Statutory

Instrument 2009 No 692.


31

London Borough of Lambeth Pension Fund (“the Fund”) Actuarial Statement for 2010/11 This statement has been prepared in accordance with Regulation 34(1) of the Local Government Pension

Scheme (Administration) Regulations 2008, and Chapter 6 of the CIPFA/LASAAC Code of Practice on Local

Authority Accounting in the UK 2010/11.

Description of Funding Policy

The funding policy is set out in the Administering Authority’s Funding Strategy Statement (FSS), dated June

2011. In summary, the key funding principles are as follows:

• to ensure the long-term solvency of the Fund as a whole and of the share of the Fund attributable to

individual employers;

• to ensure that sufficient funds are available to meet all benefits as they fall due for payment;

• not to restrain unnecessarily the investment strategy of the Fund so that the Administering Authority can

seek to maximise investment returns (and hence minimise the cost of the benefits) for an appropriate

level of risk;

• to help employers recognise and manage pension liabilities as they accrue;

• to minimise the degree of short-term change in the level of each employer’s contributions where the

Administering Authority considers it reasonable to do so;

• to use reasonable measures to reduce the risk to other employers and ultimately to the Council Tax

payer from an employer defaulting on its pension obligations; and

• to address the different characteristics of the disparate employers or groups of employers to the extent

that this is practical and cost-effective.

The FSS sets out how the Administering Authority seeks to balance the conflicting aims of securing the

solvency of the Fund and keeping employer contributions stable.

Funding Position as at the last formal funding valuation

The most recent actuarial valuation carried out under Regulation 36 of the Local Government Pension Scheme

(Administration) Regulations 2008 was as at 31 March 2010. This valuation revealed that the Fund’s assets,

which at 31 March 2010 were valued at £765 million, were sufficient to meet 72.5% of the liabilities (i.e. the

present value of promised retirement benefits) accrued up to that date. The resulting deficit at the 2010

valuation was £290 million.

Individual employers’ contributions for the period 1 April 2011 to 31 March 2014 were set in accordance with the

Fund’s funding policy as set out in its FSS.


32

Principal Actuarial Assumptions and Method used to value the liabilities

Full details of the methods and assumptions used are described in my valuation report dated 29 March 2011.

METHOD

The liabilities were assessed using an accrued benefits method which takes into account pensionable

membership up to the valuation date, and makes an allowance for expected future salary growth to retirement

or expected earlier date of leaving pensionable membership.

ASSUMPTIONS

A market-related approach was taken to valuing the liabilities, for consistency with the valuation of the Fund

assets at their market value.

The key financial assumptions adopted for the 2010 valuation were as follows:

31 March 2010

% p.a. % p.a. Financial assumption

Nominal Real

Discount rate 6.1% 2.7%

Pay increase * 5.3% 0.8%

Price inflation/pension increase 3.3% -

*plus an allowance for promotional pay increases. Short term pay growth was assumed to be 1% p.a. for 2010/11 and 2011/12, reverting to 5.3% p.a. thereafter.

The key demographic assumption was the allowance made for longevity. The baseline longevity assumptions

adopted at this valuation were in line with standard SAPS mortality tables, and included improvements based

on medium cohort projections and a 1% p.a. underpin effective from 2007. Based on these assumptions, the

average future life expectancies at age 65 are as follows:

Males Females

Current pensioners 20.1 years 22.9 years

Future Pensioners 22.0 years 24.8 years

Copies of the 2010 valuation report and Funding Strategy Statement are available on request from the London

Borough of Lambeth, administering authority to the Fund. The next actuarial valuation will be carried out as at

31 March 2013. The Funding Strategy Statement will also be reviewed at that time.

Peter Summers

Fellow of the Institute and Faculty of Actuaries

For and on behalf of Hymans Robertson LLP

11 July 2011


33

STATEMENT OF RESPONSIBILITIES

1. Council’s Responsibilities

The Council is required:

• To make arrangements for the proper administration of its financial affairs and to secure that one of its officers has the responsibilities for the administration of those affairs (usually that officer is the Director of Finance);

• To manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets.

• To approve the statement of accounts. 2. The Director of Finance’s Responsibilities

The Director of Finance is responsible for the preparation of the Funds statement of accounts in accordance with proper practices set out in the CIPFA Code of Practice on Local Government Accounting.

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 of practice on Local Authority Accounting;

• Kept proper accounting records which were up to date;

• Taken reasonable steps for the prevention and detection of fraud and other irregularities. I certify that these accounts present fairly the financial position of the Lambeth Pension Fund as at 31 March 2011 and its income and expenditure for the year then ended.

Mike Suarez Executive Director of Finance and Resources


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INDEPENDENT AUDITOR’S REPORT

Independent auditor’s report to the Members of London Borough of Lambeth Pension Fund

We have audited the pension fund accounting statements for the year ended 31 March 2011 under

the Audit Commission Act 1998. The pension fund financial statements comprise the Fund Account,

the Net Assets statement and the related notes 1 to 14. The pension fund accounting statements

have been prepared under the accounting policies set out in the Statement of Accounting Policies.

This report is made solely to the members of London Borough of Lambeth Pension Fund in

accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in

paragraph 48 of the Statement of Responsibilities of Auditors and of Audited Bodies prepared by the

Audit Commission. Our audit work has been undertaken so that we might state to the Authority those

matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest

extent permitted by law, we do not accept or assume responsibility to anyone other than the Authority

as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Executive Director of Finance and Resources and auditor

As explained more fully in the Statement of Responsibilities, the Executive Director of Finance and

Resources is responsible for the preparation of the pension fund’s Statement of Accounts in

accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local

Authority Accounting in the United Kingdom. Our responsibility is to audit the accounting statements

in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those

standards require us to comply with the Auditing Practice’s Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements

sufficient to give reasonable assurance that the financial statements are free from material

misstatement, whether caused by fraud or error. This includes an assessment of: whether the

accounting policies are appropriate to the scheme’s circumstances and have been consistently

applied and adequately disclosed; the reasonableness of significant accounting estimates made by

the fund; and the overall presentation of the financial statements. We read all the information which

comprises the commentary on the financial performance included within the Pension Fund Annual

Report to identify material inconsistencies with the audited financial statements. If we become aware

of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

• give a true and fair view of the state of London Borough of Lambeth Pension Fund’s affairs as

at 31 March 2011 and the amount and disposition of the fund’s assets and liabilities as at 31

March 2011, other than liabilities to pay pensions and other benefits after the end of the Fund

year; and

• have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on

Local Authority Accounting in the United Kingdom.


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Opinion on other matters

In our opinion, the information given in the annual report for the financial year for which the

accounting statements are prepared is consistent with the accounting statements. Matters on which we report by exception

We have nothing to report in respect of the governance statement on which we report to you if, in our

opinion the governance statement does not reflect compliance with the Local Government Pension

Scheme (Administration) Regulations 2008 and related guidance.

Nigel Johnson (Engagement Lead) for and on behalf of Deloitte LLP Appointed Auditor

St Albans, United Kingdom

September 2011


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Documents

2011 - Lambeth · Local Authority Funds for investment income growth in June 2011 by the LAPF Investments magazine. In the year to 31 March 2011, the Fund value increased to £778m