Under Local Government Pension Scheme Regulations the County Council is required to maintain a Pension Fund for certain categories of its employees together with the majority of employees of District Councils and other bodies that were formerly under the control of Local Authorities.

In addition, certain other bodies are eligible to join if the County Council agrees, and a number of voluntary/charitable bodies have obtained membership in this way.  Membership of the scheme is optional for all employees, although a written election not to join must be made if employees wish to remain outside the scheme.  Teachers, Firefighters and Police Officers all have their own schemes.

Details of the other admitted and scheduled bodies in the Fund are shown in note 5.

There were 30,912 contributors to the Fund at 31^st March 2007 and 15,414 of pensions were in payment.

Actuarial Position:

a) Local Government Pension Funds, in common with other pension funds in both public and private sectors, have periodic valuations to assess the extent to which assets accumulated are adequate to meet future liabilities.  To ensure that the fund remains financially sound to meet benefit payments, the actuary recommends the rate of employer contributions on an individual employer basis for each employing body in the fund on a triennial basis.The Council’s actuary, Hymans Robertson and Co. completed the latest valuation, as at 31^st March2004.  The change in contribution rates resulting from the actuarial valuation as at 31^st March 2004 were effective from 1^st April 2005. This review resulted in a requirement for the common contribution rate of employer’s contributions to increase from 215% to 250% of an employee’s contribution.  This increase is being phased in over a period of up to four years commencing in 2005/06 and to be completed in the 2008/09 financial year, although the rate set as being payable in the final year (for those employers using a four year phasing period) will ultimately be superseded by the outcome of the 31^st March 2007 valuation. This common rate for all employers is adjusted to reflect the individual circumstances of different employing bodies.

b)The valuation method adopted by the actuary is the projected unit valuation method which is consistent with the aim of achieving a 100% funding level. This assesses the cost of benefits accruing to existing members during the year following the valuation, allowing for future salary increases.

c)The 2004 valuation revealed that the Fund’s assets which at 31 March 2004 were valued at £1,391 million, were sufficient to meet approximately 87% of the liabilities accrued up to that date. Assets were valued at their market value.

d)The key financial assumptions adopted for this valuation are as follows:

The nominal rate is the actual return and the real return takes into account inflation.

e)In order to value both those liabilities which have accrued at the valuation date and those accruing in respect of future service, it has been assumed that the Fund’s assets are invested in a portfolio consisting of 75% equities and 25% bonds.

The average total employers rate during 2006/07 was approximately 236% (227% 2005/06) of the employees’ rate.  Thus for an employee paying 6% of earnings, the employer on average will pay 14.1% (13.62% 2005/06).

The County Council has delegated the management of the Fund to its Pension Fund Management Board, which consists of nine voting members and five non-voting staff representatives. The voting members are split into five County Council members, two from Leicester City Council and one each representing the District Councils and De Montfort/Loughborough Universities. The Board receives investment advice from Hymans Robertson and meets quarterly to consider relevant issues.

List of admitted and scheduled bodies:

The Pension Fund contributors include Blaby District Council, Charnwood Borough Council, Connexions Leicester Shire, De Montfort University, Harborough District Council, Hinckley & Bosworth Borough Council, Leicester City Council, Leicester, Leicestershire and Rutland Combined Fire Authority, Leicestershire Constabulary, Leicestershire County Council, Leicestershire & Rutland Probation Board, Loughborough University, Melton Borough Council, North West Leicestershire District Council, Oadby & Wigston Borough Council, Rutland County Council, Colleges of Further Education and Sixth Form Colleges consisting of Brooksby Melton College, Gateway Sixth Form College, Leicester College, Loughborough College, Regent College, Samworth Academy, South Leicestershire College, Stephenson College, Wyggeston QE1 College, Parish and Town Councils consisting of Anstey, Ashby, Braunstone, Broughton Astley, Countesthorpe, Glen Parva, Leicester Forest East, Lutterworth, Oakham, Ravenstone with Snibston, Shepshed, Sileby, Syston, Thurmaston, Whetstone other employers consisting of Apetito Ltd, Bradgate Park Trust, Collegia Care, Jeakins Wear, Leicester and County Mission for the Deaf, Leicester Money Advice, Leicestershire Promotions, Local Government East Midlands, National Youth Agency, Rushcliffe Care, SLM Community Leisure, Spire Homes, VISTA, and Voluntary Action Leicester.

The financial statements have been prepared in accordance with the main recommendations of the Pension SORP (Financial Reports of Pension Schemes) and follow the 2006 Code of Practice on Local Authority Accounting issued by the Chartered Institute of Public Finance and Accountancy.

The financial statements summarise the transactions of the Fund and deal with the net assets at the disposal of the Council.  They do not take account of obligations to pay pensions and benefits which fall due after the end of the Fund year.  The actuarial position on the Scheme, which does take account of such obligations, is set out in the Actuary’s Report.

The following principal accounting policies, which have been applied consistently, have been adopted in the preparation of the financial statements:

Equities traded through the Stock Exchange Electronic Trading Service (SETS) are valued on the basis of the latest mid market price.  Other quoted investments are valued on the basis of the mid-market value quoted on the relevant stock market.Pooled investment vehicles are valued at the average of the bid and offer prices provided by the relevant fund managers, which reflect the market value of the underlying investments.Private equity valuations are based on the latest available valuations of the managers (31^st December 2006), adjusted for any cash and exchange rate movements in the final quarter.

The value of fixed interest investments in the Scheme’s investment portfolio excludes interest earned but not paid over at the Scheme year end, which is included separately within accrued investment income.

Property investments are stated at open market value based on an independent valuation.

Income from equities is accounted for on the date stocks are quoted ex-dividend.  Income from overseas investments is recorded net of any withholding tax.

Income from fixed interest and index-linked securities, cash and short-term deposits is accounted for on an accruals basis.

Income from other investments is accounted for on an accruals basis.

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 and unrealised changes in market value.

Assets and liabilities in foreign currencies are expressed in sterling at the rates of exchange ruling at the year-end.  Income from overseas investments is translated at a rate that is relevant at the time of the receipt of the income or the exchange rate at the year end, whichever comes first.

Surpluses and deficits arising on conversion or translation are dealt with as part of the change in market value of investments.

Normal contributions, both from the members and from employers, are accounted for in the payroll month to which they relate at rates as specified in the rates and adjustments certificate.  Additional contributions from the employer are accounted for in accordance with the agreement under which they are paid, or in the absence of such an agreement, when received.

Additional payments for early retirements relate to the actuarially assessed extra cost to the Fund of employing bodies allowing their members to retire in advance of normal retirement age.  These costs are reimbursed to the Fund by employing bodies.

Under the rules of the Scheme, members receive a lump sum retirement grant in addition to their annual pension.  Lump sum retirement grants are accounted for from the date of retirement.

Other benefits are accounted for on the date the member leaves the scheme or on Death.

Transfer values represent the capital sums either receivable in respect of members from other pension schemes of previous employers or payable to the pension schemes of new employers for members who have left the Scheme.  They take account of transfers where the trustees of the receiving scheme have agreed to accept the liabilities in respect of the transferring members before the year end, and where the amount of the transfer can be determined with reasonable certainty.

Administration and investment management expenses are accounted for on an accruals basis.  Expenses are recognised net of any recoverable VAT.

Employee expenses have been charged to the Fund on a time basis.  Office expenses and other overheads have also been charged.

Additional payments for early retirements are paid by employers to reimburse the Pension Fund for the cost to the Fund of employees who are allowed to retire before their normal retirement age.  Purchase of additional benefits by members allows extra service to be credited on top of any service earned via employment.

It is not possible to split benefits payable between the administering authority, scheduled and admitted bodies as is required by the Statement of Recommended Practice.

The change in the 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.

All properties, except the Fund’s farm investment, were valued on an open market basis by Nigel Holroyd of Colliers Capital UK Limited at 31^st March 2007.  The Fund’s farm was valued on an open market basis by Andrew Coombe of Leicestershire County Council.  Both valuers are Associates of the Royal Institute of Chartered Surveyors.

The Fund employs external investment managers to manage all of its investments apart from an amount of cash and a farm property, which are managed by Leicestershire County Council.  This structure ensures that the total Fund performance is not overly influenced by the performance of any one manager.

The market value of investments in the hands of each manager is shown in the table below :-

All of the Fund’s assets are held by external custodians and are therefore not at risk from the financial failure of any of the Fund’s investment managers.  The custodian used is dependent on the type of asset and the portfolio to which the asset belongs.

From the information currently available there were no material transactions with related parties in 2006/07 that require disclosure under FRS8.

When a member has left the Pension Fund before accruing sufficient service to qualify for a benefit from the scheme, they may choose either a refund of contributions or a transfer value covering the value of the benefits gained whilst they were a scheme member.  There are a significant number of these leavers who have not taken either of these options and as their ultimate choice is unknown, it is not possible to reliably estimate a liability.  The impact of these ‘frozen refunds’ has, however, been considered in the calculation of the actuarial liabilities of the fund.

If all of these individuals choose to take a refund of contributions the cost to the Fund will be around £853,000, although the statutory requirement of the Fund to pay interest to some members would increase this figure.  Should all of the members opt to transfer to another scheme the cost will be considerably higher.

At 31^st March 2007, the Fund had the following contractual commitments:-

a)Undrawn commitments totalling $115,299,100 equal to £58,785,581 to fifteen different pooled private equity funds managed by Adams Street Partners (31^st March 2006 £68,948,200 to twelve different funds).

b)Undrawn commitment of £5,484,000 to two private equity funds managed by Catapult Venture Managers (31^st March 2006 £3,216,000 to the fund).

Following a change of custodian, the Fund ceased securities lending and had no stock on loan at 31^st March 2006. Lending recommenced in April 2006 and at 31^st March 2007 the value of securities on loan was £76.7m, backed by collateral valued at £85.3m.

The Fund has an arrangement with Prudential whereby additional contributions can be paid to them for investment, with the intention that the accumulated value will be used to purchase additional retirement benefits.

The Fund has been able to gain either total or partial relief from local taxation on the Fund’s investment income from eligible countries.  The Fund is exempt from UK Capital Gains and Corporation tax.

There has been no material employer related investment in 2006/07 or 2005/06.

There are no discretionary benefits included in the calculation of transfer values.

All pensions increases are made in accordance with the Pensions Increase (Review) Order 1997.

All changes to LGPS are made via the issue of Statutory Instruments by Central Government.

A statement of investment principles has been agreed by the Pension Fund Management Board.  A copy is available on request from the investments section of the County Council at the following address: Room 139, Corporate Resources Department, County Hall, Glenfield, Leicester, LE3 8RB.