TAYSIDE PENSION FUNDS ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2014 DRAFT AUDITED

Transcription

1 Scrutiny Committee 24 September Report no TAYSIDE PENSION FUNDS ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2014 DRAFT AUDITED SEPTEMBER 2014

2 CONTENTS Page Foreword by the Director of Corporate Services 2 Review of the Year Fund Update 3 Investment Commentary 5 Valuation and Distribution of Assets 7 Members and Advisors 9 Governance Arrangements 10 Governance Compliance Statement 12 Statement of Responsibilities for the Statement of Accounts 17 Independent Auditor's Report 18 Tayside Pension Fund Statement of Accounts 2013/14 Fund Account 20 Net Asset Statement 21 Notes to the Financial Statements 22 Actuarial Statement 32 Tayside Transport Pension Fund Statement of Accounts 2013/14 Fund Account 34 Net Asset Statement 35 Notes to the Financial Statements 36 Actuarial Statement 42 Statement of Investment Principles 44 Appendix 1 - Scheduled and Admitted Bodies 49 Appendix 2 - Additional Information 50 Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 1

3 FOREWORD BY DIRECTOR OF CORPORATE SERVICES Welcome to the Tayside Pension Funds Annual Report and Accounts produced by Dundee City Council for the year ended 31 March The Annual Report has been produced to keep members, employers and other interested stakeholders informed about the administration and performance of the two Local Government Pension Scheme (LGPS) Funds that Dundee City Council is responsible for administering. The funds are : Tayside Pension Fund and Tayside Transport Pension Fund. The Annual Report includes a review of activities relevant to the funds in general and also provides sections dedicated to each of the funds, covering their investments, financial accounts and actuarial position. The Main Fund value at 31 March 2014 of 2,463.1m reflected an increase of 200.8m or 8.9% on the equivalent value at 31 March The Transport Fund value at 31 March 2014 of 56.3m reflected an increase of 2.1m or 3.9% on the equivalent figure at 31 March / - Main Fund value 2,262.3m 2,463.1m 200.8m Transport Fund value 54.2m 56.3m 2.1m Total Contributing Members 17,500 17, Total Pensioners 13,125 13, Scheduled Bodies (1) Admitted Bodies I would wish to acknowledge the efforts of Dundee City Council's Pension Section for their patience and diligence in ensuring the continuing smooth operation of the scheme and for the courteous and efficient manner in which they look after the pension needs of contributors, pensioners and deferred pensioners. Further, I would like to thank all the Trustees of the Superannuation Sub-Committee and officers of the City Council Corporate Services Department for their effort and assistance in managing the Tayside Pension Funds and, in particular, the Chair, Willie Sawers for his leadership of the Investment Sub-Committee. Marjory Stewart, FCCA,CPFA Director of Corporate Services Dundee City Council 24 September 2014 Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 2

4 REVIEW OF THE YEAR FUND UPDATE Membership The Local Government Pension Scheme is voluntary and is open to all employees of the Scheduled and Admitted Bodies (see Appendix 1). Membership of the Tayside Funds at 31 March 2014 was: Main Transport Total Fund Fund Fund Contributing Members 17, ,623 Pensioners 13, ,537 Deferred Pensioners 8, ,214 Undecided or Frozen 2, ,205 Membership Funding 41, ,579 The Funds are financed by the contributions made by members and their employers as well as income earned from the investment of the Funds' monies. The contribution rates as a percentage of basic pay for 2012/2013 and 2013/2014 were as follows :- Main Fund Transport Fund Employees Employers Employer 2012/13 5.5% - 12% 18.0% 800, /14 5.5% - 12% 18.0% 820,000 The employees' contribution levels are now tiered based on a percentage of pensionable pay, whereas the employers' contribution levels are reviewed every three years by the Funds' actuaries as part of their actuarial valuation of the Funds. If the actuaries believe that a surplus is likely to materialise they will recommend a reduction in the employers' contribution rate and if they believe a deficit is likely to materialise they will recommend an increase in the employers' contribution rate. Barnett Waddingham carried out an actuarial valuation as at 31 March The result of the valuation for the two Funds were as follows :- Main Fund Transport Fund Actuarial Value of Assets 1,922.2m 45.5m Actuarial Value as a percentage of Accrued Liabilities 98.2% 96.6% Recommended Employers' Contributions as a Percentage of Pensionable Payroll for the Main Fund and as a lump sum for the Transport Fund 2012/ % 800, / % 820, / % 840,000 The common rate of contribution is the rate, which, in addition to the accumulated assets and contributions paid by members is sufficient to meet 100% of the liabilities of the Fund. This rate takes into account the deficit at 31 March The deficit is spread over the average remaining working lifetime of the existing members. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 3

5 The Main Fund contribution rates following the 31 March 2011 valuation were calculated using the projected unit actuarial method. The Transport Fund contribution rates following the 31 March 2011 valuation were calculated using the attained age actuarial method The main actuarial assumptions were as follows: Investment return - Equities 6.9% per annum - Gilts 4.3% per annum - Bonds & Property 5.5% per annum - Discount rate (post-retirement) 4.3% per annum - Discount rate (pre-retirement) 6.9% per annum Rate of general pay increases 5.0% per annum Rate of increases to pension in payment 3.5% per annum Valuation of assets 6 monthly smoothed market related Market Value of Funds The market value of investments can go down, as well as up. The total market value of the investments that are under external management was 2,502.4m Main Fund and 56.8m Transport Fund as at 31 May Additional Contributions Under Inland Revenue rules, scheme members are permitted to make contributions towards retirement and death in service benefits in addition to those, which they are required to make as members of the Local Government Pension Scheme. These contributions are known as AVCs and are treated separately from the scheme's assets under arrangement with the Standard Life Assurance Company and Prudential Assurance Company. They are not recorded in the accounts of the Tayside Funds since the AVC scheme works on a defined contribution basis (ie benefit eventually derived will depend upon the amount of the contributions made, the performance of the investments made with these monies and the annuity rates at the point of retiral). Pension Increases Pensions and deferred pensions are increased every year under the Pension (Increase) Act 1971 in line with movements in the Retail Price Index. From April 2011, this will be linked to Consumer Price Index rather than Retail Price Index. Recent pension increases are as follows : % % % % % Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 4

6 REVIEW OF THE YEAR Investment Commentary In June 2013, the funds within Tayside Pension Scheme changed their names to Tayside Pension Fund and Tayside Transport Pension Fund respectively. Following a procurement exercise utilising the new LGPS procurement framework introduced by Norfolk Pension Fund, the Fund appointed AON Hewitt as the Fund Independent Investment Consultant in October The key change to the investments throughout the year was the allocation in November 2013 of 10% of the main fund ( 230m) to LGIM passive management from the actively managed Alliance Bernstein global equities mandate. The 2014 valuation process is now underway, which may lead to revised contribution rates being set from 1 April This valuation will include the impact of the new scheme. The contributions paid by employers in 2013/14 continued at 18% for the Main Fund and 800K for the Transport Fund based on the 2011 funding levels of 98% for the Main Fund and 97% for the Transport Fund respectively.. Although progress is being made for the new career average scheme which will start in April 2015, full regulations are not available in final form. In addition to this, a consultation is being run on the future governance arrangements for the new scheme to reflect the requirements of the Public Services Pensions Act With regard to the Fund s investment strategy and structure, the strategy in place in 2013/14 was based upon an asset allocation review conducted by the Fund s former investment advisor Hymans Robertson using liability data from the 2011 valuation. The strategy for the Main Fund has continued at 70% equities, 18% bonds and 12% real estate; and for the Transport Fund continued at 50% equities, 40% bonds and 10% real estate Reviews of investment management fees have been ongoing throughout the year supported by advice from AON Hewitt where considered appropriate and reduced fee agreements have been achieved for one active manager and negotiations are ongoing with another. Investment Performance Economic & Market Background - Financial Year to 31 March 2014 Most markets delivered strong returns during this year due to improving economic conditions and the continuing loose monetary policy in many of the developed countries which increased investor confidence. This positive sentiment continued into the Eurozone, where even the countries which had suffered the heaviest impact during the financial crisis showed positive signs. Economic measures introduced in Japan had a positive domestic impact, however this negatively impacted on the yen internationally. These losses on currency extended into Emerging Markets. US equities reached record highs during the period and gained 10% in sterling terms over the year. The UK followed with a gain of 9%, and due to improved conditions in Europe, market gains of 17% were achieved. Developed Asia (including Japan) recorded gains of 13% and Emerging markets a gain of 4% which on currency translation resulted in losses of 4% and 11% respectively. Gathering signs of momentum in US economic recovery resulted in reduced levels of support from the US Government. This coupled with improved economic data from the UK suggested that the worst had passed and then introduced the possibility of an interest rate rise. Both political and economic challenges are expected in the coming year and although the global investment environment continues to improve there may be significant market volatility as a result. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 5

7 REVIEW OF THE YEAR Performance Measurement The collective performance of the Fund s investment managers throughout the financial year to 31 March 2014 was exceptional, returning 9.1% which was 2.94% in excess of the overall benchmark for the year. This outperformance is attributable to the individual investment managers and for Tayside Transport Fund for both 1 year and 3 year timescales is as follows: Average Annual Performance Return to 31 March 2014 % Return Actual Benchmark Main Fund Fidelity Baillie Gifford (Global) Baillie Gifford (UK) Schroder Property Alliance Bernstien Fund Managers Goldman Sachs Fidelity Bond M & G UK Transport Fund 14 Annualised Return 3 Years to 31 March % Return Actual Benchmark Main Fund Fidelity Baillie Gifford (Global) Baillie Gifford (UK) Schroder Property Fund Managers Alliance Bernstien Goldman Sachs Fidelity Bond Transport Fund Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 6

8 REVIEW OF THE YEAR Principal Equity Holdings (Top Five by Value) as at 31 March 2014 Investment Value ( 000) % of Total Equity Holding Activities Prudential 27, Life Insurance Glaxo Smithkline PLC 19, Pharmaceuticals HSBC 19, Banks Roche 16, Pharmaceuticals Lloyds 15, Banks Top Five Total 99, Total Value of Equities 1,761,035 Total Value of Funds 2,459,350 Asset Allocation and Value These performance returns in relation to the assets invested had the following impact on the value of the funds: Tayside Pension Fund Valuation ( m) and Distribution (%) 31/03/ /03/2014 Sector m % m % UK Equities UK Bonds Overseas Bonds Overseas Equities , Property Unit Trusts M&G Fund Derivatives (0.1) Cash Balance Held By Managers Net Financial Assets Net Current Assets , , Tayside Transport Pension Fund Valuation ( m) and Distribution (%) 31/03/ /03/2014 Sector m % m % UK Equities UK Bonds Overseas Bonds Overseas Equities Property Unit Trusts Derivatives Cash Balance Held By Managers Net Financial Assets Net Current Assets Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 7

9 REVIEW OF THE YEAR Valuation of Assets of the Pension Funds Main Fund Transport Fund m m m m Opening Value 1, , New Cash Inflow/(Outflow) (0.5) (1.1) Appreciation/(Depreciation) during the year Value as at 31 March 2, , ,500 2,300 2,100 Tayside Pension Fund -Value of Fund by Year Value of Funds ( m) 1,900 1,700 1,500 1,300 1, Year Ended 31st March 57 Tayside Transport Pension Fund -Value of Fund by Year 52 Value of Funds ( m) Year Ended 31st March Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 8

10 REVIEW OF THE YEAR MEMBERS AND ADVISORS Pension Investment Sub-Committee Dundee City Council is the administering authority for the Funds. The majority of this responsibility is delegated through the Council's Policy and Resources Committee to the Pension Investment Sub-Committee. Membership of the Sub-Committee as at 31 March 2014 is as noted below: Councillors: Bailie Willie Sawers (Chair) Cllr Jimmy Black Cllr Kevin Keenan Bailie Ian Borthwick Cllr Gregor Murray Cllr Brian Gordon Representatives (non voting) Mrs C Shepherd (Tayside Trade Union Council) Vacant (Unison) Vacant (TGWU representing Travel Dundee Ltd) Fund Managers Baillie Gifford & Co (Appointed November 1992) Fidelity Pension Management (Appointed November 1997) Schroder Property Investment Management (Appointed July 1997) Goldman Sachs Asset Management (Appointed July 2003) Alliance Bernstein (Appointed July 2003) M&G Investment Management (Appointed May 2010) Legal & General Investment Management (Appointed November 2013) Investment Advisers Hymans Robertson (Terminated September 2013) Aon Hewitt (Appointed October 2013) Actuaries Barnett Waddingham (Appointed July 2004) Custodian Northern Trust (Appointed April 2002) Bankers Auditors Corporate Governance Advisors Performance Measurement Royal Bank of Scotland KPMG LLP Pension & Investment Research Consultants Ltd (PIRC) Northern Trust Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 9

11 GOVERNANCE ARRANGEMENTS Dundee City Council is the administering authority and scheme manager of Tayside Pension Scheme ( incorporating Tayside Pension Fund and Tayside Transport Pension Fund), a local government pension scheme covering the Tayside area. The Council is responsible for ensuring that the business of both funds is conducted in accordance with the law and appropriate standards. Scope of Responsibility The Council has set up the Pensions Investment Sub-Committee to control and resolve all matters relating to the investment of assets and the overall governance of the Funds. It is the role of the Pensions Investment Sub- Committee to: Ensure that the Funds are: o Compliant with the Local Government Pension Scheme Regulations and all other legislation that governs the administration of the funds. o Valued as required and that reports received on each valuation are considered. Be responsible for: o Setting the investment objectives and policy and the strategic asset allocation in the light of the Funds liabilities. o Appointing, reviewing, and assessing the performance of investment managers, investment consultants, custodians and actuaries. o Ensuring appropriate arrangements are in place for the administration of benefits. o Ensure appropriate additional voluntary contributions arrangements are in place. Prepare, maintain and publish the following: o Governance Compliance Statement. o Funding Strategy Statement. o The Authority Policy Statement. o Statement of Investment Principles. o Corporate Governance Policy. The Governance Framework The overall governance structure, including the wider responsibilities of the Committee, is set out in the Governance Compliance Statement. Regulation 27 of the Local Government Pension Scheme (Administration)(Scotland) Regulations 2008 requires administering authorities to prepare and publish a written statement setting out the terms of their current governance arrangements, incorporating guidance provided by Scottish Ministers. The statement was last reviewed by Committee in 2011 and demonstrates that the Funds are compliant with guidance provided. Tayside Pension Fund is administered by Dundee City Council in accordance with Section 24 of its Financial Regulations. Investment policy and decisions are delegated to the Pension Investment Sub-Committee of the Policy and Resources Committee The Pension Investment Sub-Committee provides focus on, and scrutiny over, the investment strategy and the performance of managers and the safe custody of it s assets. The Sub-Committee consists of 6 elected members from the administering authority, supported by officers of the administering authority (including the Director of Corporate Services), and 3 trade union representatives who have observer status. The Committee meets quarterly to consider pension matters relating to investment and governance. Additional meetings are called should any matter require an in-depth review. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 10

12 GOVERNANCE ARRANGEMENTS The Fund also holds annual investment forums for employers and the trade unions. The agenda for these meetings includes presentations by the Actuary and the Fund s Investment and Administration Managers and covers the actuarial position, the benefits structure and investment performance. Information on the Fund is available from the following links: Minutes of Committee meetings Publications - The Statement of Investment Principles, concerning the approach to the investment of the fund. The Business Plan, communication the aims and objectives of the Fund for the forthcoming year. The Treasury Management Strategy for the forthcoming year. The Actuary s report on the 2011 valuation. The Funding Strategy Statement, concerning the management of the identification and management of the Fund s liabilities. The Risk Register, concerning the application of Myners Principles. The Governance Policy Statement which sets out the Funds approach Marjory Stewart, FCCA, CPFA Director of Corporate Services Dundee City Council Willie Sawers Chair of Pension Investment Sub- Committee, Tayside Pension Fund 24 September September 2014 Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 11

13 GOVERNANCE COMPLIANCE STATEMENT Compliance Principle Structure The management of the administration of benefits and strategic management of fund assets clearly rests with the main committee established by the appointing council. Arrangements in Place/Action Taken Principal responsibility for the administration of benefits and strategic management of fund assets rests with the Policy & Resources Committee. Compliance with Principle? Yes/No/Partial Yes Comments The Pension Investment Sub- Committee of the Policy & Resources Committee has a remit to supervise and control the operations and investments. That representatives of participating LGPS employers, admitted bodies and scheme members (including pensioner and deferred members) are members of either the main or secondary committee established to underpin the work of the main committee. Membership of the Pension Investment Sub-Committee includes 3 observer members who represent scheme members. Partial In addition representatives of participating LGPS employers, admitted bodies and scheme members are consulted and included in all communications relating to the Pension Investment Sub- Committee. That where a secondary committee or panel has been established, the structure ensures effective communication across both levels. Minutes of the Pension Investment Sub-Committee are reported to the Policy & Resources Committee. Yes That where a secondary committee or panel has been established, at least one seat on the main committee is allocated for a member from the secondary committee or panel. All members of the Pension Investment Sub-Committee are members of the Policy & Resources Committee. Yes Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 12

14 GOVERNANCE COMPLIANCE STATEMENT Compliance Principle Representation That all key stakeholders are afforded the opportunity to be represented within the main or secondary committee structure. These include:- Arrangements in Place/Action Taken Compliance with Principle? Yes/No/Partial Comments i) employing authorities (including non-scheme employers, e.g. admitted bodies); ii) scheme members (including deferred and pensioner scheme members); Membership of the Pension Investment Sub-Committee includes 3 observer members who represent scheme members. No Yes Regular communication is undertaken with key stakeholders. Employer Forum held annually for scheduled and admitted bodies. iii) where appropriate independent professional observers; and No No requirement for this has been identified. iv) expert advisors (on an ad-hoc basis) Investment Consultant Yes That where lay members sit on a main or secondary committee, they are treated equally in terms of access to papers and meetings and training and are given full opportunity to contribute to the decision making process, with or without voting rights. All members receive the same access to all papers and training opportunities and are given the opportunity to contribute to the decision making process. Yes Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 13

15 GOVERNANCE COMPLIANCE STATEMENT Compliance Principle Arrangements in Place/Action Taken Selection and Role of Lay Members That committee or panel Induction and Refresher members are made fully Training is provided to all aware of the status, role members. and function they are required to perform on either a main or secondary committee. Compliance with Principle? Yes/No/Partial Yes Comments That at the start of any meeting, committee members are invited to declare any financial or pecuniary interest related to specific matters on the agenda Members are bound by a Code of Conduct which requires them to declare any interest related to specific matters on the agenda. This is stated at the start of each agenda. Yes Voting The policy of individual administering authorities on voting rights is clear and transparent, including the justification for not extending voting rights to each body or group represented on main LGPS committees. Voting rights are detailed in the Tayside Pension Funds Statement of Investment Principles. Yes Statement of Investment Principles is accessible via the Council website. Training/Facility Time/Expenses That in relation to the All new members of the way in which statutory Pension Investment Suband related decisions are Committee are offered taken by the training by officers. Further administering authority, training is offered there is a clear policy on periodically, generally from training, facility time and investment consultants, reimbursement of investment managers of the expenses in respect of fund and actuaries. In members involved in the addition, if other training decision-making process. opportunities are identified, including attendance at conferences and seminars, these are offered to members, as appropriate. Costs and expenses incurred are met by the Pension Fund. Yes Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 14

16 GOVERNANCE COMPLIANCE STATEMENT Compliance Principle Arrangements in Place/Action Taken Training/Facility Time/Expenses continued That where such a policy Training policy applies to all exists, it applies equally members of the Pension to all members of Investment Sub-Committee. committees, subcommittees, advisory panels or any other form of secondary forum. Compliance with Principle? Yes/No/Partial Yes Comments That the administering authority considers the adoption of annual training plans for committee members and maintains a log of all such training undertaken. Training is provided as needs are identified. A log of all training undertaken is maintained. Yes Meetings (Frequency/Quorum) That an administering Policy & Resources authority s main Committee meets monthly. committee or Additional meetings are held committees meet at least when necessary. quarterly. Yes That an administering authority s secondary committee or panel meet at least twice a year and is synchronised with the dates when the main committee sits. That administering authorities who do not include lay members in their formal governance arrangements, provide a forum outside of those arrangements by which the interests of key stakeholders can be represented. Pension Investment Sub- Committee meets quarterly. Additional meetings are held when necessary. Employer Forum for scheduled and admitted bodies is held annually, including presentations on topical subjects. Yes Yes Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 15

17 GOVERNANCE COMPLIANCE STATEMENT Compliance Principle Access That subject to any rules in the council s constitution, all members of main and secondary committees or panels have equal access to committee papers, documents and advice that falls to be considered at meetings of the main committee. Scope That administering authorities have taken steps to bring wider scheme issues within the scope of their governance arrangements. Publicity That administering authorities have published details of their governance arrangements in such a way that stakeholders with an interest in the way in which the scheme is governed, can express an interest in wanting to be part of those arrangements. Arrangements in Place/Action Taken All members are treated equally in terms of access to committee papers and advice. The Pension Investment Sub- Committee has a remit to supervise and control operations and investments. Governance Policy Statement was approved in May 2009, following consultation with all employers. Compliance with Principle? Yes/No/Partial Yes Yes Yes Comments Governance Policy Statement and Governance Compliance Statement is available on the Council website following committee approval. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 16

18 STATEMENT OF RESPONSIBILITIES FOR THE STATEMENT OF ACCOUNTS The Administering Authority's Responsibilities The Authority is required to : Make arrangements for the proper administration of the financial affairs of the Pension Funds in its charge and to secure that one of its officers has the responsibility for the administration of those affairs. In this Authority, that officer is the Director of Corporate Services. Manage its affairs to secure economic, efficient and effective use of its resources and safeguard its assets. The Director of Corporate Service's Responsibilities The Director of Corporate Services is responsible for the preparation of the Pension Funds statement of accounts which, in terms of CIPFA / LASAAC Code of Practice on Local Authority Accounting in the United Kingdom (the Code of Practice) is required to present a true and fair view of the financial position of the Pension Funds at the accounting date and their income and expenditure for the year (ended 31 March 2013). In preparing these statements of accounts, the Director of Corporate Services 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, except where stated in the Statement of Accounting Policies and Notes to the Accounts The Director of Corporate Services has also: Kept proper accounting records which were up to date Taken reasonable steps for the prevention and detection of fraud and other irregularities Statement of Accounts The Statement of Accounts presents a true and fair view of the financial position of the Pension Funds as at 31 March 2014, and their income and expenditure for the year ending 31 March Marjory Stewart, FCCA, CPFA Director of Corporate Services Dundee City Council 24 September 2014 Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 17

19 INDEPENDENT AUDITOR S REPORT Independent auditor s report to the members of Dundee City Council as administering body for Tayside Pension Fund and Tayside Transport Pension Fund and the Accounts Commission for Scotland We have audited the financial statements of Tayside Pension Fund and of Tayside Transport Pension Fund for the year ended 31 March 2014 on pages 20 to 21 and 34 to 35 respectively. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and as interpreted and adapted by the Code of Practice on Local Authority Accounting in the United Kingdom ( the Code ). This report is made solely to the members of Dundee City Council and the Accounts Commission for Scotland, in accordance with Part VII of the Local Government (Scotland) Act Our audit work has been undertaken so that we might state to those two parties 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 Dundee City Council and the Accounts Commission for Scotland, for this report, or the opinions we have formed. Respective responsibilities of the Director of Corporate Services of Dundee City Council and auditor As explained more fully in the Statement of Responsibilities for the Statement of Accounts set out on page 17, the Director of Corporate Services of Dundee City Council is responsible for the preparation of financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) as required by the Code of Audit Practice approved by the Accounts Commission for Scotland. Those standards require us to comply with the Auditing Practices 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 Funds circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Director of Corporate Services of Dundee City Council; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. 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 financial transactions of the Funds during the year ended 31 March 2014, and of the amount and disposition at that date of their assets and liabilities; have been properly prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom ; and have been prepared in accordance with the requirements of the Local Government (Scotland) Act 1973 and the Local Government in Scotland Act Opinion on other matter prescribed by the Local Government (Scotland) Act 1973 In our opinion the information given in the Foreword by the Director of Corporate Services of Dundee City Council the financial year for which the financial statements are prepared is consistent with the financial statements. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 18

20 Independent auditor s report to the members of Dundee City Council as administering body for Tayside Pension Fund and Tayside Transport Pension Fund and the Accounts Commission for Scotland (continued) Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Local Government (Scotland) Act 1973 requires us to report to you if, in our opinion: adequate accounting records have not been kept; or the financial statements are not in agreement with the accounting records; or we have not received all the information and explanations we require for our audit; or the Governance Compliance Statement does not comply with guidance from the Scottish Ministers. David Watt for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Saltire Court 20 Castle Terrace Edinburgh EH1 2EG Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 19

21 TAYSIDE PENSION FUND ACCOUNTS 2012/2013 FUND ACCOUNT 2013/ CONTRIBUTIONS AND BENEFITS Contributions receivable :- 66,961 From employers 5 67,620 22,029 From members 5 22,364 88,990 89,984 4,216 Transfers in 7 3,762 Benefits payable :- (60,522) Pensions (64,283) (19,651) Lump Sums 6 (19,865) (80,173) 6 (84,148) Payments to and on account of Leavers :- (139) Refund of Contributions to Members (179) (58) Refund of Contributions to State Scheme (79) (3,213) Transfers Out 7 (4,483) (3,410) (4,741) (1,198) Administration Expenses 4,14 (1,220) 8,425 Net Deposits from dealings with Members 3,637 Note RETURNS ON INVESTMENTS 52,578 Investment Income 8 59, ,757 Change in Market Value of Investments 9 146,447 (6,543) Investment Management Expenses (8,363) 294,792 Net Returns on Investments 197, ,217 Net increase in Fund during the year 200,788 1,959,058 OPENING NET ASSETS OF THE SCHEME 2,262,275 2,262,275 CLOSING NET ASSETS OF THE SCHEME 2,463,063 Notes on pages 22 to 31 form part of the financial statements. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 20

22 TAYSIDE PENSION FUND ACCOUNTS 2013 NET ASSETS STATEMENT (AS AT 31 MARCH) INVESTMENT ASSETS AT MARKET VALUE Note Listed Investments 597,595 UK Equities 593,619 - UK Pooled Funds 57,927 40,584 UK Fixed Interest - Public Sector 39,579 10,512 UK Fixed Interest Other 11,131 80,332 UK Index Linked - Public Sector 77, ,041 Overseas Equities 564,960 - Overseas Pooled Funds 175, ,797 Overseas Open Ended Investment Companies 290,860 13,696 Overseas Fixed Interest Other 12, Derivatives (Futures) 418 Unlisted Investments 293,822 UK Open Ended Investment Companies 296,038 16,213 M&G Fund 14,529 77,236 Overseas Open Ended Investment Companies 62, ,370 Property Unit Trusts 232,546 18,647 Cash Balances held by Fund Managers 25,209 8,348 Financial Debtors 13 11,598 2,259,790 2,466,766 FINANCIAL LIABILITIES (727) Derivatives (Futures) (89) (2,772) Other Financial Liabilities 13 (6,998) (3,499) Total Financial Liabilities (7,087) 2,256,291 Net Financial Assets 9 2,459,679 CURRENT ASSETS 6,510 Contributions Due from Employers 5,614 1,125 Sundry Debtors 12 1,768 4,412 Cash and Bank 2,318 12,047 9,700 LESS CURRENT LIABILITIES (6,063) Sundry Creditors 12 (6,316) 5,984 NET CURRENT ASSETS 3,384 2,262,275 NET ASSETS 2,463,063 Notes on pages 22 to 31 form part of the financial statements. Marjory Stewart, FCCA, CPFA Director of Corporate Services Dundee City Council 24 September 2014 Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 21

23 NOTES TO TAYSIDE PENSION FUND FINANCIAL STATEMENTS 1 - The Local Government Pension Scheme The Scheme is a "defined benefit scheme" which means that the benefits to which members and their spouses are entitled are determined by final pensionable pay and pensionable service. Dundee City Council is the administering authority for Tayside Pension Fund (Main Fund). The scheme covering the Fund is statutory, approved by the Inland Revenue and contracted out of S2P (the State Second Pension). Tayside Pension Fund is maintained for the benefit of its membership (including existing and deferred pensioners). This comprises the majority of Local Government employees within Dundee City Council, Perth and Kinross Council and Angus Council as well as 42 other "scheduled bodies" and "admitted bodies" (see appendix 1). Teachers are not included in the Scheme as they have a separate, nationally established, statutory arrangement. 2 - Basis of Preparation of the Financial Statements Local authorities responsible for administering a pension fund that forms part of the local government pension scheme ( LGPS ) are required by an amendment to The Local Government Pension Scheme (Administration) (Scotland) Regulations 2008 to publish a pension fund annual report, which is required to include financial statements. Local authorities have a duty under section 12 of the Local Government in Scotland Act 2003 to observe proper accounting practices. The Scottish Government issued accounting Guidance for the LGPS financial statements in Finance Circular 1/2011, which clarified that pension fund financial statement within the annual report should be prepared in accordance with proper accounting practices set out in the Code of Practice on Local Authority Accounting in the United Kingdom ( the Code ). 3 - Statement of Accounting Policies A summary of the more important accounting policies, which have been consistently applied, is set out below:- Investments Investments are included at market values, which are assessed as follows:- A - UK quoted securities are valued at "bid" market prices at close of business on the last working day of the financial year. B - Overseas securities are valued at "bid" market prices from the relevant overseas stock exchanges converted at closing rates of exchange on the last day of the financial year. C - Unlisted investments, which comprise the Fund Manager's Unit Trusts and Open Ended Investment Companies, are valued at "bid" market prices on the last working day of the financial year as supplied by the Fund Manager. Income and Expenditure The accounts have been prepared on an accruals basis; that is income and expenditure is included as it is earned or incurred, not as it is received or paid, except for Transfer Values which are included when they are paid or received. Investment Income Income from fixed interest, index linked securities and other interest receivable is taken into account on an accruals basis. Income from all other Marketable Securities is taken into account on the date when stocks are quoted ex-dividend. Cash and Cash Equivalents Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents comprise short term lending that is repayable on demand or within 3 months of the Balance Sheet date and that is readily convertible to known amounts of cash with insignificant risk of change in value. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 22

24 Contributions Contributions represent the amounts received from organisations participating in the Fund, these may be from the administering authority, other scheduled bodies or admitted bodies. Such amounts relate both to their own employer contributions and to those of their pensionable employees. Employee and employers contributions due as at 31 March 2014 have been accrued. Foreign Currency Income and expenditure arising from transactions denominated in a foreign currency are translated into sterling at the exchange rate in operation on the date on which the transaction occurred. Where the transaction is to be settled at a contracted rate that rate is used. Investment Management Expenses Investment Management expenses consist of direct charges in line with Management Agreements, Management Charges levied on pooled funds, overseas charges and non-recoverable withholding tax, less Brokers' commission rebate. Administrative Overheads and Expenses The Pension Administration and Pension Investment sections of Dundee City Council are responsible for administering the two Pension Funds. The above sections receive an allocation of the overheads of the Council, this is based on the amount of central services consumed. In turn, these sections allocate this charge to the two Pension Funds. Costs which can be directly charged to each fund during the financial year will be, costs which are shared by both Funds are allocated in proportion to the market value or membership of the Funds as at 31 March Acquisition Cost Any acquisition costs of investments are included in the Book Cost of the investment. Additional Voluntary Contributions Additional voluntary contributions are separately invested from those of the funds. Additional voluntary contributions are not included in the financial statements in accordance with section 5(2)(c) of The Pensions Scheme (Management and Administration of Funds) Regulations 1998, but are disclosed as notes only (note 10). Transfers to and from other Schemes Transfer values represent the amounts received and paid during the year for members who have either joined or left the Fund during the financial year and are calculated in accordance with Local Government Pension Scheme Regulations. Individual transfers in/out are accounted for when received/paid, which normally when the member liability is accepted or discharged. Transfers in from members wishing to use the proceeds of their additional voluntary contributions to purchase scheme benefits are accounted for on a receipt basis and are included in Transfers In. Bulk (group) transfers are accounted for on an accruals basis in accordance with the terms of the transfer agreement. Taxation The Fund is registered public service scheme under section 1(1) of Schedule 36 of the Finance Act 2004 and as such is exempt from UK income tax on interest received and from capital gains tax on the proceeds of investments sold. Income from overseas investments suffers withholding tax in the country of origin, unless exemption is permitted. Irrecoverable tax is accounted for as a Fund expense as it arises. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 23

25 4 - Related Parties The transactions and balances with Dundee City Council disclosed in the net asset statement, details are provided below : Transactions Administration Costs 1,108 1,107 Balances Due from Dundee City Council as at 31 March 1,686 1, Contributions The total contributions receivable analysed between administering authority, other scheduled bodies and admitted bodies were as follows :- 2012/2013 Other Administering Authority Scheduled Bodies Admitted Bodies Total Member contributions 6,684 12,204 3,141 22,029 Employer contributions 19,414 35,398 8,655 63,467 Strain on Fund 1,601 1, ,494 Total 27,699 49,157 12,134 88, /14 Administering Authority Other Scheduled Bodies Admitted Bodies Total Member contributions 6,720 12,159 3,311 22,190 Employer contributions 19,712 35,964 9,212 64,888 Strain on Fund 666 2, ,906 Total 27,098 50,190 12,696 89, Benefits The total benefits payable analysed between administering, other scheduled bodies and admitted bodies were as follows :- Total Benefits Payable (incl. Lump Sums) Lump sums (Retirement and Death Benefits) 2012/ / / / Administering Authority 31,060 31,745 6,657 6,141 Other Scheduled Bodies 40,807 44,393 10,909 12,261 Admitted Bodies 8,306 8,010 2,085 1,463 TOTAL 80,173 84,148 19,651 19,865 Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 24

26 7 - Transfer Values The total transfer values received and paid analysed between administering, other scheduled bodies and admitted bodies were as follows :- Transfer Values Received Transfer Values Paid 2012/ / / / Administering Authority , Other Scheduled Bodies 2,130 1,718 1,511 2,884 Admitted Bodies 1,148 1, TOTAL 4,216 3,762 3,213 4, Investment Income 2012/ / Interest from Fixed Interest Securities 6,423 6,490 Dividends from Equities 34,909 34,796 Income from Index Linked Securities 1, Income Pooled Investment Vehicles 7,867 11,868 Interest on Cash Deposits Other Income 2,650 5,620 53,003 59,587 Irrecoverable Withholding Tax (425) (520) 52,578 59, Investments Market Value of Investments Managed Externally The Fund's investment assets are under the management of six external fund managers. At 31 March 2014 the market value of these investment assets was 2,459.7m (2013 2,256.3m), managed as follows: m % m % Schroder Properties Limited Baillie Gifford & Co Fidelity Pensions Management Equity Alliance Bernstein Goldman Sachs 276.5* * 11.2 Fidelity Bond M & G Investment Management Legal & General Financial Debtors Financial Liabilities (2.8) (0.1) (7.0) (0.3) Net Financial Assets 2, , * Within the Goldman Sachs investment total above there is an investment of 131.3m ( m) which exceeds 5% of net assets available for benefits. This is in the GS Sterling Credit Portfolio. Although it is classed as a single investment, this is a pooled fund with over 300 holdings designed to ensure a diversified exposure to corporate bonds. Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 25

27 Derivatives - Futures Summary of contracts held at 31 March 2014 Economic Exposure 000 Asset Liability Net Settlement Date FTSE100 3 months (785) - 7 (7) 10 yr Cdn Bund 3 months 1, Eurx E-Schatz 3 months 3, Eurx Bobl 3 months 6, Eurx Bund 3 months 3, (16) Eux BTP 3 months 3, TSE 10 yr JGB 3 months (16,004) 44 (44) LIF Long Gilt 3 months 8, yr Treasury Note 3 months (15,112) yr Treasury Note 3 months (55,939) CBT Treasury Bonds 3 months US Treasury Bonds 3 months (8,710) 22 (22) Currency Forwards Various 1, (68,733) The economic exposure represents the nominal value of security purchased under future contracts and therefore the value subject to market movements. All future contracts are exchange traded. The Fund uses futures for the purposes of efficient portfolio management and/or risk reduction. Investment Movement Summary Value at 01/04/2013 m Purchases at Cost m Sales Proceeds m Change in Market Value m Value at 31/03/2014 m Schroder Property (5.6) Baillie Gifford Global (59.0) Fidelity Equity (82.2) Alliance Bernstein (449.2) Goldman Sachs (106.9) (4.7) Fidelity Bond (3.9) Baillie Gifford UK (14.8) M&G Fund (2.4) Legal & General (1.1) , (720.1) ,429.9 Financial Liabilities (2.8) (7.0) Cash Deposits Financial Debtors Net Financial Assets 2, ,459.7 Transaction Costs Transaction costs are included in the cost of purchases and sales proceeds. Transaction costs include costs charged directly to the fund such as fees, commissions, stamp duty and other fees. The total for the year was m ( m). Purchases & Sales Purchases and Sales in 2012/2013 and 2013/2014 amounted to:- 2012/2013 m 2013/2014 m Purchases Sales Tayside Pension Funds Draft Audited Annual Report and Accounts for the year ended 31 March 2014 Page 26