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Pension Committee |
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Date of meeting: |
22 February 2023 |
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By: |
Chief Finance Officer |
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Title: |
Business plan, 2023/24 Budget and Quarterly budget report |
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Purpose:
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This report provides an update on the 2022/23 Forecast Financial Outturn and sets out the business plan and budget for 2023/24 |
RECOMMENDATION
The Committee is recommended to:
1. note the 2022/23 Q3 forecast financial outturn position
2. approve the Business Plan and Budget for 2023/24 in Appendix 1
1. Background
1.1 The East Sussex Pension Fund’s (the Fund) business plan and budget sets out the direction of travel, objectives and targets to be achieved in the financial management for the administering authority to carry out its statutory duties in a structured way. The Pension Committee has been delegated the duties of East Sussex County Council as the administering authority in respect of the Pension Fund.
1.2 At its meeting on the 24 February 2022 the Pension Committee agreed a budget of £7.141m to support the business plan for 2022/23. The budget estimates do not incorporate any provision for investment fees earned by fund managers which are deducted at source by asset managers, income from contributions or payment of pension benefits as these are paid in line with statute and not a discretionary item.
2. Supporting information
2022/23 Q3 Forecast Outturn as at 31 December 2022
2.2 The forecast outturn at the third quarter of 2022/23 is £5.739m, a decrease of £0.600m from the previous reported forecast outturn. The 2022/23 projected outturn against budget line items is shown in the table below. The underspend mostly relates to investment management fee invoices due to lower asset values, lower custody fees based on the likelihood of transition activity taking place in 2023/24 rather than 2022/23 and fund officer vacancies. The main movements to the budget are detailed in Paragraphs 2.3 to 2.5.
2022/23 Outturn Report
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2021/22 Outturn |
Item |
2022/23 Budget |
2022/23 Actuals to December |
2022/23 Forecast Outturn Q2 |
2022/23 Forecast Outturn Q3 |
Variance to Previous Quarter |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
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Pension Fund Staff Costs |
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|
|
|
|
|
1,234 |
Staffing |
1,900 |
137 |
1,510 |
1,435 |
75 |
|
2 |
Recruitment costs |
5 |
(1) |
- |
- |
- |
|
1,236 |
Sub Total |
1,905 |
136 |
1,510 |
1,435 |
75 |
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Pension Fund Oversight and Governance |
|
|
|
|
|
|
55 |
Actuarial |
200 |
89 |
155 |
133 |
22 |
|
57 |
Employer Actuarial work |
80 |
15 |
66 |
76 |
(10) |
|
-38 |
Employer recharges |
(80) |
(20) |
(66) |
(77) |
11 |
|
- |
Governance consultancy costs |
- |
54 |
55 |
60 |
(5) |
|
- |
Communications |
42 |
5 |
5 |
5 |
- |
|
8 |
Training Costs |
30 |
11 |
17 |
20 |
(3) |
|
47 |
External Audit – Grant Thornton |
35 |
(28) |
22 |
24 |
(2) |
|
279 |
East Sussex County Council recharges |
249 |
45 |
202 |
184 |
18 |
|
56 |
Legal Fees |
78 |
28 |
43 |
55 |
(12) |
|
70 |
Subscriptions and Other Expenses |
72 |
54 |
67 |
81 |
(14) |
|
534 |
Sub Total |
706 |
253 |
566 |
561 |
5 |
|
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Investment activities |
|
|
|
|
|
|
216 |
Investment Advice |
135 |
102 |
135 |
150 |
(15) |
|
21 |
ESG Advice |
50 |
24 |
50 |
24 |
26 |
|
139 |
Custodian |
136 |
(15) |
166 |
97 |
69 |
|
110 |
ACCESS |
125 |
125 |
125 |
125 |
- |
|
3,210 |
Investment Manager Fee Invoices |
2,872 |
400 |
2,667 |
2,208 |
459 |
|
3,696 |
Sub Total |
3,318 |
636 |
3,143 |
2,604 |
539 |
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Pension Administration |
|
|
|
|
|
|
150 |
East Sussex County Council recharges |
281 |
52 |
209 |
198 |
11 |
|
98 |
System Services and License |
346 |
303 |
378 |
394 |
(16) |
|
156 |
Consultancy & Service Providers - Benefits |
100 |
181 |
203 |
218 |
(15) |
|
- |
Other Administration projects |
150 |
10 |
100 |
65 |
35 |
|
218 |
Admin operational support services |
289 |
20 |
269 |
269 |
- |
|
14 |
Other Expenses |
50 |
17 |
35 |
52 |
(17) |
|
-3 |
Other Income |
(4) |
(2) |
(20) |
(3) |
(17) |
|
633 |
Sub Total |
1,212 |
581 |
1,174 |
1,193 |
(19) |
|
6,099 |
Total |
7,141 |
1,606 |
6,393 |
5,793 |
600 |
2.3 Since the November meeting recruitment to the remaining vacant posts has been mostly successful however most posts are being filled later than anticipated. 5 vacancies are now forecast to be vacant till the early part of the next financial year. Resulting in an underspend of £0.075m from the previous quarter.
2.4 Since the November meeting the value of the Fund’s investments have stayed relatively level. This is around £180m less than 31 March 2022 with around £100m of this affecting the equity portion of the Fund. The fees that are invoiced to the Fund are predominantly from our equity managers which are outside the ACCESS ACS structure. The fees charged are linked to the value of the assets under management. As the assets undermanagement are continuing to be lower than anticipated over the year we have adjusted the expectation of the fee level down. This is created an underspend of £0.459m to the expected fees for last quarter.
2.5 Custody fees are also partially based on the assets we hold as well as activity undertaken. When we are moving assets between managers, we incur additional costs from the custodian. Compared to the expectation at the beginning of the year the Fund has not readjusted the assets as much as we had planned during the year with the expectation that this may move to next year. The Fund is only expecting to cover the normal custodian cost for the remainder of the year so have underspend of £0.069m compared to last quarter.
3. 2023/24 Business Plan and Budget
3.1 The Business Plan and Budget is set out in Appendix 1.
3.2 Total budget proposed is £4.463m (£4,269m 2022/23) to support the Business Plan activities and administration of the Fund.
3.3 There has been a significant change in the reporting of the budget from the Business Plan in 2022/23, where invoiced investment management fees were included in the budget. This has been removed in 2023/24 due to the inability to predict investment returns which drive investment fees as they are linked to the assets under management. In addition, investment management fees are a mix of invoiced directly and deducted at source from the investment balance. The previous budget only included directly invoiced meaning the reported fees were only capturing certain investments and not all investment management fees. Investment management fees are calculated and reported in full in the annual report and accounts as part of the statutory accounting process.
3.4 The budget is £0.194m higher than the 2022/23 budget. The variance as been driven by an increase of £0.118m on staff costs which assumes the Fund is fully staffed for the year. A higher pay award is also budgeted for in 2023/24 than in previous years. There is a £0.134m increase expected on IT Systems due to a one of payment of £0.050m for improvements to the member self-service system, £0.020m improvement to the payroll system, an increase to contract costs due to membership exceeding the 80,000 threshold and £0.046k for inflation increases. This is partially offset by a reduction in actuarial fees of £0.113m as this is a non-valuation year.
3.5 The layout of the budget for 2023/24 has been amended to better align the budget with statutory reporting requirements. This will allow for a more transparent view of the costs when they are reported in the Pension Fund Annual Report and Accounts.
4. Conclusion and reasons for recommendation
4.1 The Committee is recommended to note the Q3 2022/23 forecast position and approve the Business Plan and Budget for 2023/24.
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Chief Finance Officer |
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Contact Officer: |
Russell Wood, Pensions Manager: Investments and Accounting |
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Email: |
Russell.Wood@eastsussex.gov.uk |
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