ANNUAL Report and Accounts

 

                             2023-2024            

 

Contents

Section           Name of section                                                                                                   Page

 Introduction                                                                                                                 3

1                      Overall Fund Management                                                                                           9

2                      Governance and Training                                                                                             17

3                      Financial Performance                                                                                                  26

4                      Fund Account, Net Assets Statement and note                                                                       31

5                      Investment and Funding                                                                                              89

6                      Administration                                                                                                             141

7                      Actuarial reports on Funds                                                                                          152

8                      External Audit Opinion                                                                                                           155

9                      Additional Information                                                                                                 158

                                                                                                                                                                                                          

 

 

Welcome from Chair of Pension Committee

 

Welcome to the East Sussex Pension Fund Annual Report for 2023/24

As Chair of the East Sussex Pension Fund (the Fund) Pension Committee, I have the pleasure in introducing the Fund’s Annual Report and Accounts for 2023/24. The accounts focus on the financial activity in the year to 31 March 2024. The membership of the Fund on 31 March 2024 was 85,416 people (24,888 active, 25,288 pensioners and 35,240 deferred) and there were 144 scheme employers. This has been another turbulent year in terms of global markets with inflationary pressures and increasing interest rates, but the Fund has been robust and provided a strong service to our scheme members and employers. The Fund has a strong focus on ensuring effective governance, which was seen by the Fund being awarded the Governance Award at the LAPF Investment Awards in October 2023. The Fund has also rolled out a number of robots to automate some of its Pensions Administration processes, to free up time of officers to work on more complicated tasks.

This year has seen continuing volatility in the global economy. We ended last year with steep rises in inflation leading to a 10.1% increase to pension payments from April 2023, with a 6.7% increase coming into place in April 2024. In addition to the significant inflationary benefits to pensioners, some scheme members will have also seen the benefits of the change in tax limits with an increase to the annual allowance threshold from £40,000 to £60,000 from April 2023 and the removal of the lifetime allowance from April 2023.

The Pension Committee committed to some changes to the Investment Strategy in the year, reallocating the uncommitted strategy allocation from inflation linked property to index linked gilts to reduce risk in the portfolio and benefit from the high bond yields. Due to the outstanding performance of the Fund’s resource efficient passive equity investment the Committee also agreed to rebalance the allocation of the passive equities to give equal weighting to the two managers investing this strategy on behalf of the Fund.

The investment return for the year to 31 March 2024 was a positive 7.9%, however when compared to the benchmark, this was an underperformance of 4.4%. Equity markets have been driven ahead by seven technology companies that have resulted in an underperformance of the Fund to the index as our investment managers are underweight in big US technology, instead focusing investment on sustainable and impact growth Funds. Private equity mandates delivered very strong performance over the 3 and 5 year periods but were largely negative over the year.

 

The Fund has become cash negative from the scheme member activities; this is in part due to the slight contribution reductions for many of the scheme employers following the strong funding position of the valuation, and also the high inflation uplift given to all pensions in payment at the start of the year. The Fund continues to generate sufficient cashflow from its investments and member activities but the Committee will focus on income over future years when considering strategy, to ensure we continue to have sufficient income in the long term to pay pensions.

 

Despite all of this, the Fund is well diversified, very well-funded and has defensive elements to its investment strategy. The Fund’s strategy and risk management processes help us to make sure we can keep paying our members pensions now and into the future. The Fund’s last triennial valuation was completed in 2022 which assessed the solvency level at 123%. The scheme actuary has continued to track the movement of this funding position and on 31 March 2024 expected the funding level to be 118%. The fall in funding level was expected, as it was mostly due to the high inflation increase applied in April 2023 compared to the actuaries long term 20 year average that is modelled for the valuation assumptions. The Fund continues to be in a very strong position comparing assets to liabilities.

 

As a global long-term investor, the Pension Committee recognise that climate change presents significant long-term risks to the value and security of pension scheme investments, and climate opportunities and responsible investment are a significant factor driving returns. The Fund has continued its journey of responsible investment, and more specifically with its focus on climate change risk. We have a detailed Statement of Responsible Investment Principles (SRIP) which sets out the Fund’s beliefs on responsible investment and environmental, social and governance risks and how it manages those risks and commitments through investment decision making and implementation. As part of the Committee’s work in the year, we made some significant improvements to this SRIP including a refresh of our beliefs; we set engagement priorities; added a section on how we manage conflicts of interest within the investment strategy; and documented key ESG themes for the Fund. This all helps ensure we are progressive in our approach and being active stewards of our beneficiaries’ pensions.

The Fund invests in a range of sustainable funds including two active impact managers who focus on companies which generate positive social or environmental impacts while generating a financial return; a resource efficient mandate that invests in companies with reduced carbon emissions, reduced water usage and better waste management; and two further equity investment portfolios that are Paris aligned. The Fund also have a commitment to a sustainable multi asset credit fund which should go live in the coming months. As a Fund, we are keen advocates for active stewardship and report on engagement activity quarterly, evidencing voting and engagement, covering both our own and our managers activities. The Fund was successful in retaining its FRC Stewardship Code signatory status in the year, meeting the industry’s strictest requirements.

 

The Fund has continued to be an active member of the ACCESS (A Collaboration of Central, Eastern and Southern Shires) investment pool, together with 10 partner LGPS Funds. By the end of 2023/24 over £45bn was invested within pooled arrangements which equates to 70% of assets being pooled. £29bn was invested on the ACCESS authorised contractual scheme (ACS) platform; £12bn managed via the ACCESS passive equity manager; 1.7bn invested in pool governed infrastructure mandates; and 2.2bn in pooled Real Estate. As a Fund we are working with the pool to implement further illiquid asset classes, transition our real estate portfolio to the pooled manager and develop the governance and responsible investment arrangements within the pool.

The Pension Committee and Pension Board have worked tirelessly to transform the East Sussex Pension Fund landscape. I would like to take this opportunity to express my thanks for all the support and input provided by Committee and Board members and officers. I look forward to continuing to work with members and officers in the new financial year as the Fund seeks to meet the challenges of an ever-changing national and global environment.

In presenting the Annual Report, I hope you find it helpful in understanding the Fund.

Councillor Gerard Fox

Chairman of the East Sussex Pension Fund Pension Committee

 

Welcome from Chair of Pension Board

 

As the independent Chair of East Sussex Pension Fund’s Pension Board, I am delighted to share the highlights of the Board’s successes and how it has overcome challenges in the previous financial year.

As part of my welcome for the 2022/23 accounts I discussed the changes that had been made to the Board membership. The expected period of stability did not materialise, with several members resigning from the Board for a variety of reasons. This was challenging, both for the Officers responsible for seeking appropriate replacements and the Board’s combined levels of knowledge and understanding. However, I am pleased to report that the new members of the Pension Board have adapted well to the role. They have brought a fresh impetus into the ongoing ambition to provide the highest possible level of service for savers within the Fund.

The Board went into the 2023/24 financial year with a target to improve its oversight of investment decision making by the Pension Committee. Whilst such decisions lie wholly within the remit of the Pension Committee, the governance of these decisions is subject to oversight from the Board. I am happy to say that, after working closely with Officers, the Pension Board has been able to achieve this goal and improved its understanding of the factors influencing decision-making to ensure the Committee's fiduciary duty to act in best interests of members is complied with.

Communication with savers is a crucial part of the Fund’s work and something the Board has championed for many years. This year the Board has supported the publication of a condensed version of the previous year’s accounts to help build an understanding of the work being done on savers’ behalf. This document received highly positive feedback, both directly from savers and via Trade Unions.

The year ahead

Membership of the Pension Board is expected to stabilise in the year ahead. Allowing its members to develop their knowledge and understanding. This will be vital as the Fund seeks to implement its plans to achieve industry best practice in how it complies with The Pension Regulator’s new General Code, which replaced the Code of Practice the Fund was previously expected to comply with. The Fund has a history of good governance, winning the LAPF Governance Award in 2023, so I am optimistic this can be achieved.

Investment Governance is expected to remain a crucial topic in the year ahead. With the new Government elected in July 2024 promising a review of the pension industry it is expected that changes will be made. The Board is committed to working with Officers to implement and changes whilst ensuring the best possible saver outcomes.

 

Ray Martin

Chair of Local Pension Board

 

Introduction to the LGPS

 

Local Government Pension Scheme

The LGPS is a statutory scheme, established by an Act of Parliament, the Superannuation Act 1972 and since April 2014 the Public Service Pensions Act 2013. The Local Government Pension Scheme Regulations 2013 came into force on 1 April 2014. Membership of the LGPS is open to all employees of local authorities except teachers, fire fighters and police, who have their own separate schemes. It is also open to employees of other employers specified within the legislation.

The LGPS is a registered public service pension scheme under Chapter 2 of Part 4 of the Finance Act 2004 meaning that members receive tax relief on contributions. The Scheme complies with the relevant provisions of the Pension Schemes Act 1993, the Pensions Act 1995, and the Pensions Act 2004.

The LGPS is one of the largest pension schemes in the UK. It is a defined benefit pension scheme, meaning members’ pensions are based on their salary and how long they pay into the Scheme. LGPS pensions are not affected by how well investments perform, instead the LGPS provides a secure and guaranteed income every year when members stop working.

The LGPS is administered locally by 86 local pension funds in England and Wales. East Sussex County Council (ESCC) has a statutory responsibility as “Administering Authority” to administer and manage the East Sussex Pension Fund (the Fund) on behalf of all the participating employers in East Sussex, and in turn the past and present contributing members, and their dependents. All duties in administering and managing the Pension Fund have been delegated to the East Sussex Pension Committee supported by the East Sussex Pension Board.

The Fund is required to:

•           collect employer and employee contributions, investment income and other amounts due as stipulated in LGPS Regulations

•           pay the relevant entitlements as stipulated in LGPS Regulations

•           invest surplus monies in accordance with the LGPS Regulations

•           ensure that cash is available to meet liabilities as and when they fall due

•           take measures as set out in the regulations to safeguard the Fund against the consequences of employer default

•           carry out a triennial valuation process in consultation with the fund actuary

•           prepare and maintain a Funding Strategy Statement and Investment Strategy Statement

•           monitor all aspects of the Fund’s performance and funding

•           take environmental, governance and social factors into account within its investment strategy

Overall Fund Management

Scheme Management and Advisers

 

Responsibility for the East Sussex Pension Fund is delegated to the County Council’s Pension Committee members with support from the East Sussex Pension Board. The Pension Board comprises representatives from the Fund’s employers and members with an Independent Chairman. The Pension Committee receives advice from the County Council’s Chief Finance Officer, Actuary, Investment Consultants, and an independent Investment Advisor.

Name of Fund support	Company/individuals
Pension Committee Members - East Sussex County Councillors	Gerard Fox (Chairman) – Conservative Ian Hollidge – Conservative Paul Redstone – Conservative David Tutt – Liberal Democrats Georgia Taylor – Green Party
Pension Board Members - pensionboard@eastsussex.gov.uk	Independent Chairman Ray Martin Employer representatives Councillor Bharti Gajjar – Brighton & Hove City Council (July 2023 – January 2024) Nigel Manvell – Brighton & Hove City Council (From February 2024) Councillor Andrew Wilson – Borough and District Councils (From July 2023) Tim Oliver – University of Brighton Member representatives Lynda Walker – Unison (until May 2023) Trevor Redmond – Unison (From September 2023) Zoe O’Sullivan – Active/Deferred representative (From July 2023) Neil Simpson – Pensioners’ representative
Scheme administrator	East Sussex County Council - Pensions@eastsussex.gov.uk
Bankers to the Fund	NatWest Bank
Auditor	Grant Thornton UK LLP – London https://www.grantthornton.co.uk/
Pension Fund officers -esccpensionsmanager@eastsussex.gov.uk	Chief Finance Officer (S151 officer): Ian Gutsell Head of Pensions: Sian Kunert Head of Pensions Administration: Paul Punter Pension Manager: Investments and accounting: Russell Wood
Actuary	Barnet Waddingham - 163 West George Street, Glasgow, G2 2JJ
Legal Advisors	Appointed from National LGPS Framework for Legal Services
Investment Consultant	ISIO, 110 George Street, New Town, Edinburgh, EH2 4LH  https://www.isio.com/
Independent Adviser	William Bourne https://www.linchpin-advisory.com/
Asset Pool	ACCESS Pool – https://www.accesspool.org/
Asset Pool Operator	Waystone
Investment Managers	Adams Street Partners, https://www.adamsstreetpartners.com/ Atlas, https://www.atlasinfrastructure.com/ Baillie Gifford*, https://www.bailliegifford.com/en/uk/individual-investors/ Harvourvest, https://www.harbourvest.com/ IFM Investors, https://www.ifminvestors.com/en-gb/ Longview Partners*, https://www.longview-partners.com/ M&G**, https://www.mandg.com/ Newton*, https://www.newtonim.com/uk-institutional/ Pantheon, https://www.pantheoninfrastructure.com/ Ruffer*, https://www.ruffer.co.uk/en/ Schroders, https://www.schroders.com/en-gb/uk/institutional/ Storebrand, https://www.storebrand.no/en/ UBS, https://www.ubs.com/uk/en.html Wellington, https://www.wellington.com/en WHEB https://www.whebgroup.com/
Custodian	Northern Trust
AVC Provider	Prudential https://www.mandg.com/pru/customer/en-gb

 

* Appointed through the ACCESS Pool operator. ** Bond mandates appointed through ACCESS other mandates directly appointed.

Bodies to which the fund is member, subscriber or signatory

 

Pensions and Lifetime Savings Association (PLSA)

Local Authorities Pension Fund Forum (LAPFF)

CIPFA Pensions Network

Club Vita

Local Government Association (LGA)

Local Government Pension Scheme National Framework:

•           Passive Investments,

•           Legal Services,

•           Actuarial Benefits and, Governance

•           Investment Management Consultancy Services

•           Stewardship Advisory Services

•           Pensions Administration Software

 

Principles for Responsible Investing (PRI)

Institutional Investors Group on Climate Change (IIGCC)

Pensions for Purpose

Financial Reporting Council (FRC) Stewardship Code 2020

Scheme Advisory Board (SAB)

UK Sustainable Investment and Finance Association (UKSIF)

 

 

 

 

 

 

 

Risk management

 

Risk management is the process of identifying risks, evaluating their likelihood and potential impact, and determining the most effective methods of controlling or responding to them. The Fund has an active risk management programme in place, which is subject to periodic review. The Fund’s approach is to manage risk rather than eliminate it entirely. 

Integrating risk management into governance practices

 

Risk management is an ongoing process for the Pension Fund and goes to the heart its operation. Senior Officers meet regularly to discuss the ongoing risks to the Fund, include both those reported and not reported on the formal risk register.  All officers are encouraged to raise concerns they may have about potential risks and which they identify as part of their day-to-day work.

 

The risk register is considered at each Pension Board and Pension Committee meeting with Officers explaining the changes to the risk landscape along with identifying areas where it is suspected change may occur in the future, such as events which are believed likely to have a future inflationary impact.

 

The governance practices of the Fund, along with other topics, have further oversight through a program of both internal and external audits. In the past year the Fund commissioned 75 days of internal audit from the East Sussex Council’s Audit Team, and this will be unchanged in the year ahead. The Fund is also subject to a wide-ranging external audit each year, with this service being provided by Grant Thornton

 

Identification of risk

 

All Officers, together with members of the Pension Board, Pension Committee, and advisers, have a role to play in the identification of risks to the Fund. The Fund has a policy in place detailing what is expected of these stakeholders and how risks should be raised to ensure they are given appropriate consideration.

Those risks that are materially likely and/or impactful on the running of the Fund are included in the risk register. This document tracks:

•           The risks;

•           how likely they are;

•           how much of an impact the risk would have on crystallisation;

•           mitigations in place; and

•           the effect of the mitigations on the risk.

The risk register is discussed at each Pension Board and Committee meeting. Members of both the Pension Board and Pension Committee are empowered to challenge Officers on the risks identified and to discuss additional risks they believe should be included in the risk register. Officers continuously review the register’s effectiveness to ensure risks, and connected mitigations, are easy to understand and track.

In the past year, a second risk register has been developed for exempt risks. This covers risks which inherently revolve around confidential information that cannot be disclosed in a public domain. By implementing this, additional, risk register, it allows the Pension Board, Pension Committee and Officers to have open discussions about the risks which may impact the Fund without the risk of breaching duties of confidentiality or releasing commercially sensitive information.

The Fund has a risk management policy in place with governs how risks can be identified and escalated. This encourages staff at all levels to raise both potential and crystallised risks they believe may affect the Fund’s work.

Risk mitigation

 

The key risks to the Fund, as at July 2024, are:

·         Cyber Security

·         Employer data

·         Investment Pooling

Cyber Security

The Fund takes cyber security and information security incredibly seriously. All new Officers are required to undertake training on these topics before they are granted full access to computer systems. The Fund has also engaged the East Sussex County Council Information Security Team to provide training on cyber risks to mitigate risks to the Fund.

In the past year the Information Security Team has also conducted an in-depth review of all systems used solely by the Pension Team, with systems used jointly with East Sussex County Council being subject to a separate review. This allowed risks inherent with the systems being used to be identified and steps taken to minimise the risk of exploitation by a bad actor.

In the forthcoming year, further detailed training has been commissioned to provide an ongoing improvement to the knowledge of cyber security for staff at all levels within the Fund and to allow for the continuous improvement of the Fund’s Business Continuity planning.

Employer data

The Fund is unable to correctly administers pensions if the data provided to it by Employers is inaccurate or significantly late. The ongoing work to enrol all Employers on the i-Connect system provides additional checks on the accuracy of information being provided by issuing prompts when an Employer seeks to upload data which varies from that provided in the past.

The Fund has an Employer Engagement Team which works closely with the organisations that participate in the Fund. This helps employers to understand their responsibilities and to cleanse the data they provide to the Fund. To ease the flow of data, employers are being onboarded to a new system which allows for the provision of member data on a monthly basis with built in tolerances to help identify potential errors.

Employer data is also covered by the Fund’s Pension Administration Strategy. This document details the relationship between the Fund and participating Employers, setting clear expectations for the provision of accurate and timely data.

Investment pooling

The East Sussex Pension Fund is part of the ACCESS Investment Pool, which was going through a significant procurement exercise at the end of the Financial Year. Fund Officers have been heavily involved in in this process to ensure the Fund is properly represented in discussions and risks to the management of the Fund are mitigated.

At the end of the Financial Year, the Government was looking at the future of pooling and how it expected investments to be made by funds within the Local Government Pension Scheme. This work is anticipated to continue after the General Election in 2024 and Officers closely monitor guidance, consultations and press releases by the Government on this topic.

Investment risk

Along with other key risks, investment risks are included on the Fund’s risk register. Investment risk is not treated as a single risk, but multiple risks and are of significant importance.

The Fund has identified 8 risks which relate to investments and assets of the Fund. Of these, 4 risks are specifically around the risks of investment, these are:

•           Poor investment returns;

•           changes to international trade affecting liquidity of assets;

•           investment pooling; and

•           inflation.

Each of these risks is listed individually on the risk register with its own scoring and mitigations. This is alongside risks relating to climate change, ESG, regulatory change in the investment landscape, liquidity and fraud.

Mitigations for the 4 risks identified include:

•           Ensuring appropriate training is made available to officers and Pension Committee Members;

•           obtaining support from an advisor who is independent of the Investment Consultant;

•           engaging closely with the ACCESS Pool to ensure the Fund’s interests are protected;

•           diversification of assets; and

•           a capacity to rebalance portfolios between the annual formal review of the investment strategy.

Shared services

 

Officers are aware of both the risk and opportunities presented by sharing some key services with the wider Local Authority. In terms of Business Continuity, the Fund is represented on the appropriate working group to ensure it has sight of issues being addressed across the Council and has a voice to ensure its interests are not neglected.

The Fund also seeks to take full advantage of the upside of sharing services. An example of this is access to the Council’s Information Security and IT Teams. This means the Fund has access to a high level of specialist expertise to an extent which would be unaffordable as a standalone organisation.

Investment risk

 

Reviewing our processes

 

The Fund is committed to ensuring it has appropriate controls in place. As such, the Fund commissions an external audit of its practices to help identify any areas where improvements can be made. Additionally, the Fund commissions a wide range of internal audits, some of which cover risk management. This year the Fund commissioned 75days of internal audit, although not all will just focus on risk management.

An external audit is undertaken each year, with the Fund currently using Grant Thornton as its Auditor.

 

 

 

 

 

 

 

 

 

 

Governance and Training

 

Pension Committee

 

East Sussex County Council (Administering Authority / Scheme Manager) operates a Pension Committee for the purposes of facilitating the administration of the East Sussex Pension Fund, i.e., the Local Government Pension Scheme that it administers. Members of the Pension Committee owe an independent fiduciary duty to the beneficiaries of the Pension Fund. The Pension Committee Members are therefore expected to carry out appropriate levels of training to ensure they have the requisite knowledge and understanding to properly perform their role. The Terms of Reference are sited on the East Sussex County Council website at https://democracy.eastsussex.gov.uk/documents/s55587/Final%20Table%205%20Other%20Committees%20and%20Panels.pdf

Pension Board

 

The Scheme Manager is required to establish and maintain a Pension Board, for the purposes of assisting with its duties. The Pension Board is constituted under the provisions of the Local Government Pension Scheme (Governance) Regulations 2015 and the Public Service Pensions Act 2013. Members of the Pension Board should also receive the requisite training and development to enable them to properly perform their compliance role, as required by legislation. The Terms of Reference are sited on the East Sussex County Council website at https://democracy.eastsussex.gov.uk/documents/s55587/Final%20Table%205%20Other%20Committees%20and%20Panels.pdf

 

ACCESS Pool Joint Committee

 

The ACCESS Pool operates a Joint Committee which has been set up through an Inter Authority Agreement (IAA) which was formalised and executed by each Individual Authority between May and June 2017 and came into effect on the 31 July 2017 at the first formal Joint Committee meeting. The role of the ACCESS Joint Committee, which has one representative from each participating Fund, is to:

•           Ensure pool delivers value for money;

•           Appointment and termination of the Operator;

•           Ensures pool meets needs of individual funds e.g. sub-funds the operator must provide to support individual fund strategies;

•           Set pool level policies e.g. sharing of costs;

•           Monitor Operator performance against KPIs; and

•           Monitor investment performance

Since 2022, two representatives from underlying Pension Boards from the 11 LGPS Funds attend Joint Committee meetings as observers in rotation. This is to increase transparency.

 

Committee membership and attendance

 

During the year ended 31 March 2024 there were 4 meetings of the Pension Committee, 4 meetings of the Pension Board along with the annual Employers’ Forum.

Member attendance at committee meetings during 2023/24:

2023/24 - Pension Committee Members

 

East Sussex County Councillors	Nos. of meetings attended
Councillor Gerard Fox (Chairman)	4/4
Councillor Ian Hollidge Councillor Paul Redstone Councillor Colin Swansborough[1]	4/4 4/4 2/2
Councillor Georgia Taylor Councillor David Tutt	4/4 2/4

 

2023/24 - Pension Board Members

 

Board Members	Nos. of meetings attended
Councillor Bharti Gajjar - Brighton & Hove City Council	1/2
Nigel Manvell – Brighton & Hove City Council	1/1
Tim Oliver - Educational Bodies	3/4
Zoe O’Sullivan - Active & Deferred Trevor Redmond – Active and Deferred Neil Simpson – Pensioner	4/4 2/4 4/4
Lynda Walker - Active & Deferred Councillor Andrew Wilson – Borough and District Councils	1/1 3/4

 

2023/24 - Member attendance at ACCESS Pool joint committee meetings

 

2023/24 Joint Committee Members	Nos. of meetings attended
Councillor Gerard Fox Councillor Paul Redstone[2]	3/4 1/1

 

 

During 2023/24 the Pension Board saw a change in its makeup, with the following people being appointed and resigning:

·         Cllr Gajjar – appointed July 2023 and resigned November 2023

·         Nigel Manvell – appointed January 2024

·         Tim Oliver – appointed April 2023

·         Zoe O’Sullivan – appointed July 2023

·         Trevor Redmond – appointed July 2023

·         Lynda Walker – resigned June 2023

·         Cllr Wilson – appointed July 2023

The existing independent Chair of the Pension Board was re-appointed for a term of 4 years.

The Knowledge and Skills Framework

 

 The Fund’s objectives relating to knowledge and understanding are to:

•           Ensure the Fund is appropriately managed and those individuals responsible for its management and administration have the appropriate knowledge and expertise;

•           Ensures that there is the appropriate level of internal challenge and scrutiny on decisions and performance of the Fund;

•           Ensure the effective governance and administration of the Fund; and

•           Ensure decisions taken are robust and based on regulatory requirements or guidance of the Pensions Regulator, the Scheme Advisory Board (SAB) and the Secretary of State for Housing, Communities and Local Government (Levelling Up, Housing and Communities in 2023/24).

CIPFA/Solace Knowledge and Skills Framework – Pension Fund Committees

 

Although there is currently no statutory requirement for knowledge and understanding for members of the Pension Committee, it is the Fund’s opinion that members of the Pension Committee should have no less a degree of knowledge and skills than those required in legislation by the Local Pension Board. The SAB’s ‘good governance’ project signals a much stronger requirement on Pension Committee members knowledge and understanding.

The CIPFA framework, that was introduced in 2010, covers six areas of knowledge identified as the core requirements:

•           Pensions legislative and governance context;

•           Pensions accounting and auditing standards;

•           Financial services procurement and relationship development;

•           Investment performance and risk management;

•           Financial markets and products knowledge; and

•           Actuarial methods, standards and practice.

Under each of the above headings the Framework sets out the knowledge required by those individuals responsible for Fund’s management and decision making.

CIPFA Technical Knowledge and Skills Framework – Local Pension Boards

 

CIPFA extended the Knowledge and Skills Framework in 2015 to specifically include Pension Board members, albeit there is an overlap with the original Framework.

 

The 2015 Framework identifies the following areas as being key to the understanding of local pension board members:

•           Pensions Legislation;

•           Public Sector Pensions Governance;

•           Pensions Administration;

•           Pensions Accounting and Auditing Standards;

•           Pensions Services Procurement and Relationship Management;

•           Investment Performance and Risk Management;

•           Financial markets and product knowledge; and

•           Actuarial methods, standards and practices.

 

Members of the Pension Board and Pension Committee, together with senior Officers within the Fund, complete a review of their knowledge measured against the areas recommended by both CIPFA and The Pensions Regulator each year. The results of this exercise are used to develop the training programme for the year ahead.

Links to The Scheme Advisory Board’s Good Governance project

 

In February 2019 the Scheme Advisory Board commissioned Hymans Robertson to consider options for enhancing LGPS governance arrangements to ensure that the Scheme is ready for the challenges ahead and at the same time retains local democratic accountability. Following extensive consultation and engagement with the LGPS community, the SAB has published 3 reports. The most recent report, published in February 2021, includes recommendations on the following areas:

•           Conflicts of Interest – Funds will be expected to produce and publish a policy covering actual, potential, and perceived conflicts of interest;

•           Representation – Funds will produce and publish a policy on the representation of members and employers, explaining how voting rights work;

•           Knowledge and Understanding – Highlighting that key individual should have the knowledge and understanding to fulfil their functions, including the s.151 Officer;

•           Service delivery – This covers publishing details of decision makers’ roles and responsibilities, publishing an administration strategy, reporting on performance, and including the Committee in business planning, and;

•           Compliance and Improvement – Undergoing a biannual Independent Governance review.

The findings of the Good Governance Review have yet to be formally adopted in statutory form, however, the Administering Authority recognises the principles behind the recommendations and seeks to embed them into the culture of the East Sussex Pension Fund. 

The Pensions Regulator’s E-learning toolkit

The Pensions Regulator has developed an online toolkit to help those running public service schemes understand the governance and administration requirements set out in its Code of Practice 14 - Governance and administration of public service pension schemes, which was in place until March 2024.  Compliance with the, new, General Code will be expected for the forthcoming financial year.

The toolkit covers seven short modules, which are: Conflicts of Interests; Managing Risk and Internal Controls; Maintaining Accurate Member Data; Maintaining Member Contributions; Providing Information to Members and Others; Resolving Internal Disputes; Reporting Breaches of the Law.

The modules of the Regulator’s toolkit are by their very nature generic, having to cater for all public service pension schemes.  While they give a minimum appreciation of the knowledge and understanding requirements set out in the Code of Practice, they do not cater for the specific requirements of the individual public service schemes.  

As a result, the Regulator’s toolkit does not cover knowledge and skills requirements in areas such as Scheme regulations, the Fund’s specific policies and the more general pensions legislation. The Trustee Toolkit, a separate aid produced by the Pensions Regulator, includes a module on scams.

Whilst the Trustee Toolkit is designed for Trustees of private occupational pension schemes, some aspects of it have value for those connected to public service pension schemes. An example of a module which is relevant to the Fund is the one focused on transfer-out legislation and scams, which Pension Board and Pension Committee members have been asked to take along with appropriate officers.

The Pension Committee under the constitution of East Sussex County Council, has the responsibility “To make arrangements for the investment, administration and management of the Pension Fund”.  

Members of the Committee must, therefore, have an understanding of all aspects of running the Fund and how to exercise their delegated powers effectively. 

Members of the Pension Committee require an understanding of:

•           Their responsibilities as delegated under the constitution of East Sussex County Council as the administering authority for the Fund;

•           The requirements relating to pension fund investments;

•           The management and administration of the Fund;

•           Controlling and monitoring the funding level; and

•           Effective governance and decision making in relation to the management and administration of the Fund.

There also exists a specific requirement under MiFID II, that those making investment decisions, must be able to demonstrate that they have the capacity to be treated as professional investors.

Expectations on Pension Committee Members

 

The role of Pension Committee member is an important one and there are certain expectations on those undertaking the role.  These include:

•           A commitment to attend and participate in training events and to adhere to the principles of the Training Strategy;

•           The ability to use acquired knowledge to participate in meetings and to ask questions constructively of the information provided by officers, advisers, and others;

•           Judge the information provided in a fair and open-minded way that avoids pre-determining outcomes; and

•           Operate within the terms of reference for the Pension Committee and the elected member code of conduct. 

Local Pension Board

 

Under the constitution, the Local Pension Board is required to provide assistance to East Sussex County Council as the LGPS Scheme Manager in securing compliance with:

•           LGPS Regulations and any other legislation relating to the governance and administration of the LGPS;

•           Requirements imposed in relation to the LGPS by The Pensions Regulator;

•           The agreed investment strategy; and

•           Any other matters as the LGPS regulations may specify.

The role of the Local Pension Board is to provide assistance to the administering authority to ensure that the Fund is well run and complies with its legal responsibilities and best practice. The Local Pension Board does not replace the administering authority or make decisions which are the responsibility of the administering authority.

Local Pension Board members must be conversant with:

•           The relevant LGPS Regulations and any other regulations governing the LGPS;

•           Guidance issued by The Pensions Regulator and other competent authorities, relevant to the LGPS;

•           Any policy or strategy documents as regards the management and administration of the Fund; and

•           The law relating to pensions and such other matters as may be prescribed.

 

 

Training attended by Pension Board and Pension Committee

 

In the financial year 2023/24 members of both the Pension Board and Pension Committee attended a range of training sessions. These were a mix of sessions led by Officers, in-house events led by one of the Fund’s advisors and external training events. All Board and Committee members are also provided with a list of articles and podcasts each month that have a training benefit. The time spent at formal sessions, which excludes personal development such as online toolkits, is listed below.

 

Pension Committee

 

East Sussex County Councillors	Hours of training events attended
Councillor Gerard Fox (Chairman) Councillor Ian Hollidge Councillor Paul Redstone	7.25 8 8
Councillor Georgia Taylor Councillor David Tutt	20.45 7

 

Pension Board

Board Members	Hours of training events attended
Ray Martin (Chair) Councillor Bharti Gajjar - Brighton & Hove City Council[3]	16.15 -
Nigel Manvell – Brighton & Hove City Council[4]	1
Tim Oliver - Educational Bodies	1
Zoe O’Sullivan - Active & Deferred Trevor Redmond – Active and Deferred Neil Simpson – Pensioner	17.45 4.30 8.15
Lynda Walker - Active & Deferred[5] Councillor Andrew Wilson – Borough and District Councils	- 1

 

Work undertaken by the Pension Board and Pension Committee

 

In financial year 2023/24 the Pension Board heard, and provided input for, reports on a variety of topics covering the governance and administration of the Fund. This included discussion of the risk register, which is a standing item on the agenda of both the Pension Board and Pension Committee.

The Pension Board also sought additional information from Officers, which is now provided at each meeting on the approach taken by the Pension Committee to taking financial decisions. Whilst the taking financial decisions is within the remit of the Pension Committee, the Board has oversight of investment governance and this further consideration has improved its ability to offer effective challenge to decision making, where appropriate. A report covering the financial year by the Chair of the Pension Board can be found at https://democracy.eastsussex.gov.uk/documents/s59460/7.%20Report%20of%20the%20Pension%20Board%202024.pdf.

The Pension Committee has standing items as part of its meeting covering updates on various aspects of governance, administration and investments. Additionally, it has reviewed Fund policies that have been in place for a period of three years to ensure they are fit for purpose and continue to comply with best practice. It has also worked to make changes to the asset allocations in place and made changes to the delegated authority of the Chief Finance Officer to improve the ability of the Fund to react swiftly to both investment upside and downside developments.

Conflicts of interest

In order to preserve the integrity of the Pension Fund there is a regular review of interests Officers, Pension Board members and Pension Committee members have outside of the Fund. All Officers are required to make a declaration of interests at least annually and Pension Board and Committee members are also asked about this as part of each meeting.

The Fund has a Conflicts of Interest policy which covers the expectations around this in more detail. It is available from the Fund website (https://www.eastsussexpensionfund.org/media/wzaic35a/conflicts-of-interest-policy-2021-east-sussex-pension-fund.pdf)

Key officers

The following roles made up the senior Officer Group in Financial Year 2023/24:

·         Chief Finance Officer

·         Head of Pensions

·         Head of Pensions Administration

·         Pensions Manager – Governance and Compliance

·         Pensions Manager – Employer Engagement

·         Pensions Manager – Investments and Accounting

 

 

Financial Performance

Overview of the fund’s financial performance, Income, expenditure, and cash flows

 

Analytical Review

The following tables provide a brief review of the major movements in the Fund Account and the Net Assets Statement for the financial year. More detail is provided in the Investment Policy and Performance report from page 40.

	2022/23 £000	2023/24 £000
Fund Account
Net (Contributions)/withdrawals	(10,298)	3,352
Management Expenses	30,756	26,278
Return on Investments	88,660	(383,440)
Net Increase in Fund	109,118	(353,810)

 

	2022/23 £000	2023/24 £000
Net Asset Statement
Bonds	93,755	234,909
Equities	235,630	395,972
Pooled Funds	4,175,947	4,215,384
Cash	54,418	70,293
Other	55	(1.310)
Total Investment Assets	4,559,805	4,915,248
Non-Investment Assets	18,744	17,111
Net assets of the fund available to fund benefits at the year end.	4,578,549	4,932,359

 

 

Analysis of pension contributions

The table below shows the number of primary pension contributions received late in the financial year 2023/24.

Month	Payments Due	Payments Received Late
April	146	0
May	148	0
June	147	4
July	147	3
August	147	2
September	146	3
October	148	4
November	148	1
December	149	2
January	150	0
February	150	2
March	152	1

No interest was charged on any of the late payments.

Forecasts

 

The following tables show the forecasts and outturn for the Fund Account and the Net Asset Statement.

Fund Account	2022/23	2022/23	2023/24	2023/24	2024/25
	Forecast	Actual	Forecast	Actual	Forecast
	£000	£000	£000	£000	£000
Contributions	(153,000)	(156,992)	(161,929)	(166,107)	(186,884)
Payments	149,911	146,694	166,328	169,459	197,188
Administration expenses	3,117	3,145	3,696	3,377	3,725
Oversight and governance costs	706	318	689	598	736
Investment expenses:
Management Fees	3,318	27,293	28,352	22,303	23,187
Net investment income	(41,800)	(73,602)	(76,300)	(68,794)	(71,200)
Change in market value	(179,000)	162,262	(177,000)	(314,646)	(194,900)
Net increase in the Fund	(218,756)	109,118	(216,064)	(353,810)	(228,149)

 

Contributions and payments are based on amounts provided by the actuary used the strategy of the Fund; the administration and investment management expenses are based on current budgets; and the net investment income and change in market value are based on the long-term forecast returns for each asset class.

 

Net Asset Statement	2022/23	2022/23	2023/24	2023/24	2024/25
	Forecast	Actual	Forecast	Actual	Forecast
Equities	2,126,700	2,024,692	2,115,800	2,185,980	2,296,300
Bond	576,600	510,571	515,200	696,549	707,000
Property	399,200	328,542	336,100	321,613	329,300
Alternatives	590,100	821,790	875,200	823,502	877,000
Cash	88,200	54,418	45,600	70,293	55,500
Other	1,075,200	819,791	848,500	817,311	848,700
Total Investment Assets	4,856,000	4,559,804	4,736,700	4,915,248	5,112,800

 

The forecasts for total investment assets are based on the underlying assets within the pooled funds multiplied by the historic long-term returns for each asset class used. Net contributions, less administration and investment management expenses and oversight and governance costs, are added to the Cash figure to reflect new money into the Fund. The forecasts do not take into account potential additions or disposals of investments within these asset classes during the period as potential changes are not known with any degree of certainty.

 

 

 

Management Expenses - Forecast

 

	2022/23	2022/23	2023/24	2023/24	2024/25
	Forecast	Actual	Forecast	Actual	Forecast
	£000	£000	£000	£000	£000
Pension Fund Staff Costs
ESCC Recharge	1,905	1,482	2,023	1,958	2,436
Staff costs total	1,905	1,482	2,023	1,958	2,436
Administration Costs
ESCC Support Services	493	219	475	315	531
Supplies and Services	931	1,093	1,179	1,125	773
Income				(21)	(15)
Administration total	1,424	1,312	1,654	1,419	1,289
Oversight and governance costs
ESCC Support Services	37	37	37	37	37
Supplies and Services	767	639	652	562	699
Third Party Payments	80	69	81	118	89
Other Income	(80)	(76)	(81)	(119)	(89)
Oversight and governance total	804	669	689	598	736
Investment Management (excluding manager fees)
Custodian	136	101	97	107	100
Investment Management Total	136	101	97	107	100
Monitored Management Expenses Total	4,269	3,564	4,463	4,082	4,561
Investment Management Not Monitored*
Management Fees	2,872	27,192	28,352	22,196	23,087
Investment Management not monitored Total	2,872	27,192	28,352	22,196	23,087
Management Expenses Total	7,141	30,756	32,815	26,278	27,648

* The decision was taken that investment management fees would no longer be monitored through the budget monitoring process in 2023/24. This was due to large fluctuations in manager fees due to market movements would obscure the smaller fluctuations on lines where management were able to influence the spend. This also obscured the value within the accounts as this did not include the fees which are deducted at the individual portfolio level rather than being paid directly by the Pension Fund. This change was brought in to provide better accountability and oversight of the cost associated with running the Fund.

Pension overpayments

 

When an overpayment of pension benefits has been identified the recovery of this debt needs to be pursued. The detail of the debt is collated, and an invoice is raised to the relevant party for payment. The Fund follows the East Sussex County Councils procedure for recovering income which has escalation points set if the debt remains unpaid with the final stage this is passed on to the East Sussex legal team to pursue.

The table below shows the pension overpayments and recoveries for the past 5 years:  

Year	Value	Overpaid Pensioners	Recoveries	Write Off	Outstanding
2023/24	Number	43	38	2	3
	Value £000	51	32	1	17
2022/23	Number	69	51	13	5
	Value £000	50	30	18	2
2021/22	Number	42	26	13	3
	Value £000	32	22	7	3
2020/21	Number	19	4	0	15
	Value £000	9	1	0	8
2019/20	Number	10	8	0	2
	Value £000	6	4	0	2
2018/19	Number	30	21	1	8
	Value £000	70	59	6	5

 

Mortality screening of the active pensioners was introduced for each month in 2020, however, as part of the Orbis dissolution the Pension Fund were required to reprocure the mortality screening service, which meant mortality screening was not completed between April 2021 and June 2022. Therefore, the number of overpaid pensions has increased over the past two years, but this should reduce going forward.

 

 

Fund account, Net Assets Statement and Notes

 

 

 

 

East Sussex Pension Fund - Accounts 2023/24

 

 

Fund account, net assets statement and notes

Introduction   

 

The Local Government Pension Scheme (LGPS) is a statutory pension scheme, whose rules are governed by Parliament in accordance with the Public Services Pensions Act 2013. The rules of the scheme are provided in the Local Government Pension Scheme Regulations and provide the statutory basis within which the Scheme can operate. 

Although a national pension scheme, mainly set up for the benefit of local government employees, the LGPS is administered locally. The LGPS is open to all non-teaching employees of the County, District and Borough Councils and Unitary Authorities in East Sussex, as well as Further Education Colleges, Academies, Town and Parish Councils and a small number of charitable organisations who have applied to be treated as “admission bodies”. In addition, the LGPS allows employees of private contractors to participate in the Scheme where they are providing a service or assets in connection with the functions of a scheme employer, in accordance with the specific requirements of the LGPS Regulations.  The scheme is not open to teachers or fire fighters, as these groups of employees have separate pension schemes.

Currently within the East Sussex Pension Fund there are 144 participating employers. A full list of participating employers is given at note 29.

More information on the Fund can be found on its website Homepage | East Sussex Pension Fund.

 

Administering Authority Responsibilities

 

East Sussex County Council has a statutory responsibility to administer and manage the East Sussex Pension Fund (the Fund) on behalf of all the participating employers of the Fund in East Sussex, and in turn the past and present contributing members, and their dependents.

The Fund receives contributions from both employees and employers, as well as income from its investments, these elements then meet the cost of paying benefits of the pension scheme. As part of its responsibilities as the administering authority the County Council is responsible for setting the funding and investment strategies and reviewing the performance of the Fund’s external investment managers and advisers. The administration and management of the Pension Fund has been delegated to the East Sussex Pension Committee supported by the East Sussex Pension Board.

The Fund has the day-to-day functions of managing the governance of the Fund and administration functions under its sovereign control. The main services provided by the Fund include governance and compliance, investment, accounting, maintenance of scheme members’ records, calculation and payment of pension benefits, transfers of pension rights, calculation of annual pension increases and the provision of information and communications to scheme members, scheme employers and other stakeholders.

The Fund increased its governance arrangements following a good governance review resulting in a change to terms of reference, delegations, policies and team structure with all decision-making residing with the Pension Committee. The Fund ensures that all the participating employers within the Fund are aware of their own responsibilities through its administration strategy, as well as any changes to the provisions of the Scheme that may be introduced though an employer engagement team, communications and an annual employer forum.

A major responsibility of the administering authority is to undertake a valuation of the Pension Fund’s assets and liabilities (triennial valuation). The main purpose of this exercise is to assess the size of the Fund’s current and future liabilities against the size of assets, and then set the employer contribution to the Fund for each participating employer for the following three-year period. The most recent actuarial valuation of the Fund was carried out at 31 March 2022 and the next triennial valuation will be on the 31 March 2025 with new contribution rates set then.

 

 

Asset Pools

 

The East Sussex Pension Fund has joined with 10 other Local Government Pension Schemes (LGPS) Administering Authorities to form the ACCESS (A Collaboration of Central, Eastern and Southern Shires) Pool. The other members of the ACCESS Pool are:

At the 31 March 2023 collectively, the pool has assets of £58.7 billion (of which 59% has been pooled) serving approximately 3,459 employers with over 1.2 million members including 340,000 pensioners.

The ACCESS Pool is not a legal entity in itself, but is governed by the Inter Authority Agreement signed by each Administering Authority established in 2017. The Inter Authority Agreement sets out the terms of reference and constitution of ACCESS.

The formal decision-making body within the ACCESS Pool is the ACCESS Joint Committee. The Joint Committee has been appointed by the 11 Administering Authorities under s102 of the Local Government Act 1972, with delegated authority from the Full Council of each Administering Authority to exercise specific functions in relation to the Pooling of Pension Fund assets.

The Joint Committee is responsible for ongoing contract management and budget management for the Pool and is supported by the Section 151 Officers Group, Officer Working Group and the ACCESS Support Unit. More information on the ACCESS pool can be found on their website https://www.accesspool.org/.

 

Fund account, net assets statement and notes

 

Fund Account

2022/23 £000	2022/23 £000		Notes	2023/24 £000	2023/24 £000
		Dealings with members, employers and others directly involved in the fund
		Contributions	7
(108,941)		From Employers		(115,497)
(37,980)		From Members		(39,521)
	(146,921)				(155,018)
	(10,071)	Transfers in from other pension funds	8		(11,089)
	(156,992)				(166,107)
	140,411	Benefits	9		155,608
	6,283	Payments to and on account of leavers	10		13,851
	146,694				169,459
	(10,298)	Net (additions)/withdrawals from dealings with members			3,352
	30,756	Management expenses	11		26,278
	20,458	Net (additions)/withdrawals including fund management expenses			29,630
		Returns on investments
	(73,668)	Investment income	12		(68,871)
	66	Taxes on income	13a		77
	162,262	Profit and losses on disposal of investments and changes in the value of investments	14a		(314,646)
	88,660	Net return on investments			(383,440)
	109,118	Net (increase)/decrease in net assets available for benefits during the year			(353,810)
	(4,687,667)	Opening net assets of the scheme			(4,578,549)
	(4,578,549)	Closing net assets of the scheme			(4,932,359)

 

 

Net Assets Statement for the year ended 31 March 2024

31 March 2023 £000		Notes	31 March 2024 £000
4,505,386	Investment assets	14	4,846,304
1,062	Other Investment balances	21	1,333
(1,061)	Investment liabilities	22	(2,682)
54,418	Cash deposits	14	70,293
4,559,805	Total net investments		4,915,248
23,305	Current assets	21	20,194
(4,561)	Current liabilities	22	(3,083)
4,578,549	Net assets of the fund available to fund benefits at the year end.		4,932,359

 

The Fund’s financial statements do not take account of liabilities to pay pensions and other benefits after the period end. The actuarial present value of promised retirement benefits is disclosed at Note 20.

Treasurers Certificate

I certify that the accounts of the East Sussex Pension Fund provide a true and fair view of the Pension Fund at 31 March 2024 and of the movements for the year then ended.

 

Ian Gutsell

Chief Finance Officer (Section 151 Officer)

Business Services Department

Date to be confirmed

 

Notes to the East Sussex Pension Fund Accounts for the year ended 31 March 2024

 

1:  Description of Fund

The East Sussex Pension Fund (“the Fund”) is part of the Local Government Pension Scheme and is administered by East Sussex County Council (“the Scheme Manager”). The County Council is the reporting entity for this pension fund.

The following description of the Fund is a summary only. For more detail, references should be made to the East Sussex Pension Fund Annual Report 2023/24 and the underlying statutory powers underpinning the scheme, namely the Public Service Pensions Act 2013 and The Local Government Pension Scheme (LGPS) Regulations.

General

The scheme is governed by the Public Service Pensions Act 2013. The Fund is administered in accordance with the following secondary legislation:

a)         The Local Government Pension Scheme Regulations 2013 (as amended)

b)         The Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 (as amended)

c)         The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.

The Fund is a contributory defined benefit pension scheme administered by East Sussex County Council to provide pensions and other benefits for pensionable employees of East Sussex County Council, Brighton and Hove City Council, the district and borough councils in East Sussex County and a range of other scheduled and admitted bodies within the county area.

The Fund is also empowered to admit the employees of certain other bodies, town and parish councils, educational establishments, contractors providing services transferred from scheduled bodies and community interest bodies. The Fund does not provide pensions for teachers, for whom separate arrangements exist. Uniformed police and fire staff are also subject to separate pension arrangements.

The Council has delegated its pension functions to the East Sussex Pension Committee. Responsibility for the administration and financial management of the Fund has been delegated to the Chief Finance Officer along with the Head of Pensions.

The Scheme Manager is also required to establish and maintain a Pension Board, for the purposes of assisting with the administration and ongoing compliance of the Fund. The role of the Board is to assist the East Sussex Pension Fund in complying with all the legislative requirements making sure the scheme is being effectively and efficiently governed and managed.

Independent investment managers have been appointed to manage the investments of the Fund. The Fund also invests in liquid investments such as equities and bonds as well as illiquid investments such as private equity, infrastructure, and private debt. The Committee oversees the management of these investments and the Fund and its advisers meet regularly with the investment managers to monitor their performance against agreed benchmarks. The Pension Committee take proper advice from specialist advisers when making investment decisions.

 

 

Membership

Membership of the LGPS is voluntary and employees are free to choose whether to join the scheme, remain in the scheme or make their own personal arrangements outside the scheme. Employees are auto enrolled into the scheme every three years and on appointment.

Organisations participating in the East Sussex Pension Fund include:

a)         Scheduled bodies, which are local authorities and similar bodies whose staff are automatically entitled to be members of the Fund

b)         Admitted bodies, which are other organisations that participate in the Fund under an admission agreement between the Fund and the relevant organisation. Admitted bodies include voluntary, charitable, and similar bodies or private contractors undertaking a local authority function following outsourcing to the private sector.

There are 144 employer organisations within East Sussex Pension Fund including the County Council itself, and 85,416 members as detailed below:

East Sussex Pension Fund	31 March 2023	31 March 2024
Number of employers with active members	140	144
Number of employees
County Council	8,123	8,003
Other employers	16,568	16,885
Total	24,691	24,888
Number of pensioners
County Council	10,505	10,898
Other employers	13,619	14,390
Total	24,124	25,288
Deferred pensioners
County Council	14,460	14,288
Other employers	20,753	20,952
Total	35,213	35,240
Total number of members in pension scheme	84,028	85,416

 

Funding

Benefits are funded by contributions and investment earnings. Contributions are made by active members of the Fund in accordance with the LGPS Regulations 2013 and range from 5.5% to 12.5% of pensionable pay for the financial year ending 31 March 2024. Employee contributions are matched by employers’ contributions, which are set, based on triennial actuarial funding valuations. The last such valuation was at 31 March 2022. Currently, employer contribution rates range from 0% to 45.9% of pensionable pay.

Benefits

Prior to 1 April 2014, pension benefits under the LGPS were based on final pensionable pay and length of pensionable service. From 1 April 2014, the scheme became a career average scheme (CARE), whereby members accrue benefits based on their pensionable pay in that year at an accrual rate of 1/49th. Accrued pension is updated annually in line with the Consumer Prices Index.

There are a range of other benefits provided under the scheme including early retirement, disability pensions and death benefits. For more details, please refer to the East Sussex Pension Fund Website www.eastsussexpensionfund.org

 

2:  Basis of preparation

 

The Statement of Accounts summarises the Fund’s transactions for the 2023/24 financial year and its position at year-end as at, 31 March 2024. The accounts have been prepared in accordance with the Code of Practice on Local Authority Accounting in the United Kingdom 2023/24 which is based upon International Financial Reporting Standards (IFRS) as amended for UK public sector. The accounts have been prepared on a going concern basis. The accounts have been prepared on a going concern basis which management believes to be right as the latest valuation provided by our actuary has set the Funding level at 123% contributions rates were set for 3 years, the fund strategy statement is being followed and we are collecting contributions in line with these. We have £4.9bn in assets that are generating investment returns in line with expectations and the benefits continue to be covered from contributions and investment income.

Accounting standards issued but not yet adopted - Under the Code of Practice on Local Authority

Accounting standards issued but not yet adopted - Under the Code of Practice on Local Authority Accounting in the United Kingdom 2024/25 (the code), the Fund is required to disclose information setting out the impact of an accounting change required by a new accounting standard that has been issued on or before 1 January 2022 but not yet adopted by the Code.

The standards introduced by the 2024/25Code where disclosures are required in the 2023/24 financial statements are:

 

a) IFRS 16 Leasesissued in January 2016 (but only for those local authorities that have not decided to voluntarily implement IFRS 16 in the 2023/24 year).

b) Classification of Liabilities as Current or Non-current (Amendments to IAS I) issued in January 2020. The amendments:

• specify that an entity’s right to defer settlement must exist at the end of the reporting period

• clarify that classification is unaffected by management’s intentions or expectations about whether the entity will exercise its right to defer settlement

• clarify how lending conditions affect classification, and

• clarify requirements for classifying liabilities an entity will or may settle by issuing its own equity instruments.

 

c) Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) issued in September 2022. The amendments to IFRS 16 add subsequent measurement requirements for sale and leaseback transactions.

d) Non-current Liabilities with Covenants (Amendments to IAS 1) issued in October 2022. The amendments improved the information an entity provides when its right to defer settlement of a liability for at least 12 months is subject to compliance with covenants.

e) International Tax Reform: Pillar Two Model Rules (Amendments to IAS 12) issued in May 2023. Pillar Two applies to multinational groups with a minimum level of turnover. The amendments introduced:

 

 

• a temporary exception to the requirements to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes, and

• targeted disclosure requirements for affected entities.

 

f) Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) issued in May 2023. The amendments require an entity to provide additional disclosures about its supplier finance arrangements. The IASB developed the new requirements to provide users of financial statements with information to enable them to:

• assess how supplier finance arrangements affect an entity’s liabilities and cash flows, and

• understand the effect of supplier finance arrangements on an entity’s exposure to liquidity risk and how the entity might be affected if the arrangements were no longer available to it.

Note that a) will only be applicable to local authorities that have not voluntarily implemented IFRS 16 in 2023/24. It is likely that though they provide clarifications, items b), c) and d) will not have a significant impact on the amounts anticipated to be reported in the financial statements. There will be limited application of items e) and f).

 

There were no amendments for 2023/24 for the accounts of the Pension Fund.

The accounts report on the net assets available to pay pension benefits. They do not take account of obligations to pay pensions and benefits which fall due after the end of the financial year, nor do they take into account the actuarial present value of promised retirement benefits. The code gives administering authorities the option to disclose this information in the net asset statement, in the notes to the accounts or appending an actuarial report prepared for this purpose. The Pension Fund has opted to disclose this information in Note 20.

The Pension Fund publishes a number of statutory documents, including an Investment Strategy Statement, a Funding Strategy Statement, Governance and Compliance Policy Statement and Communications Strategy Statement. Copies can be obtained by contacting the Council’s Pensions team or alternatively are available from https://www.eastsussexpensionfund.org/

The Fund invest a large portion of its investment assets through the ACCESS (A Collaboration of Central, Eastern and Southern Shires) LGPS Pool. There is no specific accounting policy for the Pool.  The ACCESS Pool is not a legal entity in itself, but is governed by an Inter Authority Agreement signed by each Administering Authority.

The formal decision-making body within the ACCESS Pool is the ACCESS Joint Committee, which has let the management of the asset pool to Waystone Management (UK) Ltd, appointed to provide a pooled operator service and is FCA regulated.  There is no direct investment in the third party, only a contractual arrangement to provide services, so there is no investment balance to carry forward in the net asset statement.

 

3. Summary of significant accounting policies

 

Fund account – revenue recognition

 

1.         Contribution income

Normal contributions are accounted for on an accruals basis as follows:

Employee contribution rates are set in accordance with LGPS regulations, using common percentage rates for all schemes, which rise according to pensionable pay.

Employer contributions are set at the percentage rate recommended by the fund actuary for the period to which they relate.

Employer deficit funding contributions are accounted for on the basis advised by the fund actuary in the rates and adjustment certificate issued to the relevant employing body.

Additional employers’ contributions in respect early retirements are accounted for in the year the event arose. Any amount due in the year but unpaid will be classed as a current financial asset. Amounts not due until future years are classed as long-term financial assets.

Ill-health insurance policy some employers have opted into an ill-health insurance policy administered by the Fund on their behalf. Contributions calculated by the actuary include an allowance for ill-health claims this allowance is used to pay for the policy and a reduction in contributions based on the premium and membership of the employer is made. Within the policy a profit sharing mechanism has been included which is based on the claims made an assessment will be taken if any profit share will be appropriate and an accrual made on the likely share of the profits the employers are entitled to.

2.         Transfers to and from other schemes

Transfers in and out relate to members who have either joined or left the Fund.

Individual transfers in/out are accounted for when received or paid. Transfers in from members wishing to use the proceeds of their additional voluntary contributions (see below) to purchase scheme benefits are accounted for on a receipts basis and are included in Transfers In (Note 8).

Bulk (group) transfers are accounted for in accordance with the terms of the transfer agreement.

3.         Investment income

a)         Interest income

Interest income is recognised in the fund account as it accrues, using the effective interest rate of the financial instrument as at the date of acquisition or origination.

b)         Dividend income

Dividend income is recognised on the date the shares are quoted ex-dividend. Any amount not received by the end of the reporting period is disclosed in the net assets statement as a current financial asset.

 

c)         Distributions from pooled funds

Distributions from pooled funds are recognised at the date of issue. Any amount not received by the end of the reporting period is disclosed in the net assets statement as a current financial asset.

d)         Movement in the net market value of investments

Changes in the net market value of investments are recognised as income and comprise all realised and unrealised profits/losses during the year.

Fund account – expense items

4.         Benefits payable

Pensions and lump-sum benefits payable include all amounts known to be due as at the end of the financial year. Any amounts due but unpaid are disclosed in the net assets statement as current liabilities.

5.         Taxation

The Fund is a 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.

6.         Management expenses

The Fund discloses its pension fund management expenses in accordance with the CIPFA guidance Accounting for Local Government Pension Scheme Management Expenses (2016), as shown below. All items of expenditure are charged to the fund on an accruals basis as follows:

a)         Administrative expenses

All staff costs relating to the pensions administration team are charged direct to the Fund. Council recharges for management, accommodation and other overhead costs are also accounted for as administrative expenses of the Fund.

b)         Oversight and governance costs

All costs associated with governance and oversight are separately identified, apportioned to this activity and charged as expenses to the Fund

c)         Investment management expenses

Investment management expenses are charged directly to the Fund as part of management expenses and are not included in, or netted off from, the reported return on investments. Where fees are netted off quarterly valuations by investment managers, these expenses are shown separately in Note 11A and grossed up to increase the change in value of investments.

Fees of the external investment managers and custodian are agreed in the respective mandates governing their appointments. Broadly, these are based on the market value of the investments under their management and therefore increase or reduce as the value of these investments change.

Where an investment manager’s fee has not been received by the balance sheet date, an estimate based upon the market value of their mandate as at the end of the year is used for inclusion in the fund account. In 2023/24, £1.2m of fees is based on such estimates (2022/23: £0.7m).

Net assets statement

 

7.         Financial assets

All investment assets are included in the financial statements on a fair value basis as at the reporting date. A financial asset is recognised in the net assets statement on the date the Fund becomes party to the contractual acquisition of the asset.

Any amounts due or payable in respect of trades entered into but not yet complete at 31 March each year are accounted for as financial instruments held at amortised cost and reflected in the reconciliation of movements in investments and derivatives in Note 14a. Any gains or losses on investment sales arising from changes in the fair value of the asset are recognised in the fund account.

The values of investments as shown in the net assets statement have been determined at fair value in accordance with the requirements of the Code and IFRS13 (see Note 16). For the purposes of disclosing levels of fair value hierarchy, the Fund has adopted the classification guidelines recommended in Practical Guidance on Investment Disclosures (PRAG/Investment Association, 2016).

8.         Foreign currency transactions

Dividends, interest and purchases and sales of investments in foreign currencies have been accounted for at the spot market rates at the date of transaction. End-of-year spot market exchange rates are used to value cash balances held in foreign currency bank accounts, market values of overseas investments and purchases and sales outstanding at the end of the reporting period.

9.         Derivatives

The Fund uses derivative financial instruments to manage its exposure to specific risks arising from its investment activities. The Fund does not hold derivatives for speculative purposes.

Derivative contract assets are fair valued at bid prices and liabilities are fair valued at offer prices. Changes in fair value of derivative contracts are included in the change in market value. The value of futures contracts is determined using exchange prices at the reporting date. Amounts due from or owed to the broker are the amounts outstanding in respect of the initial margin and variation margin. The future value of forward currency contracts is based on the market forward exchange rates at the year-end date and determined as the gain or loss that would arise if the outstanding contracts were matched at the year end with an equal and opposite contract.

10.       Cash and cash equivalents

Cash comprises cash in hand and demand deposits and includes amounts held by the Fund’s external managers.

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to minimal risk of changes in value.

11.       Financial liabilities

A financial liability is recognised in the net assets statement on the date the fund becomes party to the liability. The fund recognises financial liabilities relating to investment trading at fair value as at the reporting date, and any gains or losses arising from changes in the fair value of the liability between contract date, the year-end date and the eventual settlement date are recognised in the fund account as part of the Change in Value of Investments.

Other financial liabilities classed as amortised costs are carried at amortised cost i.e., the amount carried in the net asset statement are the outstanding principal repayable plus accrued interest. Any interest charged is accounted for on an accrual’s basis.

 

 

12.       Actuarial present value of promised retirement benefits

The actuarial present value of promised retirement benefits is assessed on a triennial basis by the scheme actuary in accordance with the requirements of IAS 19 and relevant actuarial standards.

As permitted under the Code, the Fund has opted to disclose the actuarial present value of promised retirement benefits by way of a note to the net assets statement (Note 20).

 

13.       Additional voluntary contributions

East Sussex Pension Fund provides an additional voluntary contributions (AVC) scheme for its members, the assets of which are invested separately from those of the pension fund. The Fund has appointed Prudential as its AVC provider. AVCs are paid to the AVC provider by employers and are specifically for providing additional benefits for individual contributors. Each AVC contributor receives an annual statement showing the amount held in their account and the movements in the year.

AVCs are not included in the accounts in accordance with Regulation 4(1)(b) of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 but are disclosed as a note only (Note 23).

14.       Contingent assets and contingent liabilities

A contingent liability arises where an event has taken place prior to the year-end giving rise to a possible financial obligation whose existence will only be confirmed or otherwise by the occurrence of future events. Contingent liabilities can also arise in circumstances where a provision would be made, except that it is not possible at the balance sheet date to measure the value of the financial obligation reliably.

A contingent asset arises where an event has taken place giving rise to a possible asset whose existence will only be confirmed or otherwise by the occurrence of future events.

Contingent assets and liabilities are not recognised in the net assets statement but are disclosed by way of narrative in the notes.

 

 

4. Critical judgements in applying accounting policies

 

Pension Fund liability

The Pension Fund liability is calculated every three years by the appointed actuary, with annual updates in the intervening years. The assumptions underpinning the triennial valuation are agreed locally with the actuary and are summarised in note 19. In accordance with IAS26 the Fund is also required to disclose on an annual basis the actuarial present value of promised retirement benefits in note 20. The actuarial methodology used in triennial valuations is different from that used in IAS26 calculations, therefore they will produce different liability values at a common valuation date. The liability estimates in notes 19 and 20 are subject to significant variances based on changes to the underlying assumptions and actual future experience related to the development of pension liabilities."

 

5. Assumptions made about the future and other major sources of estimation uncertainty

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts. Estimates and assumptions are made to take into account historical experience, current trends and other relevant factors. However, actual outcomes could be different from the assumptions and estimates made. The items in the net asset statement for which there is a significant risk of material adjustment the following year are as follows:

Item	Uncertainties	Effect if actual results differ from assumptions
Actuarial present value of promised retirement benefits (Note 20)	Estimation of the net liability to pay pensions depends on a number of complex judgments relating to the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on pension fund assets. As a result of Coronavirus pandemic there is an increase in the uncertainty around the mortality provisions within the Fund, however it is too early to assess this figure at the current time so has not been included in our calculations. A firm of consulting actuaries is engaged to provide the Fund with expert advice about the assumptions to be applied.	The effects on the net pension liability of changes in individual assumptions can be measured. For instance, for the 2022 Valuation the actuary advised that: 1.             A 0.1% decrease in the discount rate assumption would result in a increase in the pension liability by approximately £63.0m (2%). 2.              A 0.1% increase in CPI Inflation would increase the value of liabilities by approximately £58.0 million (2%). 3.             A 0.25% Increase in mortality rates would result in an increase in the pension liability by approximately £29.0m (1%). 4.             A 0.5% Increase in Salary Assumption would result in an increase in the pension liability by approximately £36.0m (1%)
Private equity	Private equity investments are valued at fair value in accordance with International Private Equity and Venture Capital Valuation Guidelines (2015). Investments are not publicly listed and as such there is a degree of estimation involved in the valuation.	The total private equity investments in the financial statements are £371 million. There is a risk that this investment may be under or overstated in the accounts depending on use of estimates applied in the valuation models by the fund managers. The sensitivity of this figure is discussed further in Note 16 and Note 18.
Infrastructure	Infrastructure investments are valued at fair value in accordance with industry guidelines, based on the Fund manager valuations as at the end of the reporting period. These investments are not publicly, listed and as such there is a degree of estimation involved in the valuation.	The total infrastructure investments in the financial statements are £418.7 million. There is a risk that this investment may be under or overstated in the accounts depending on use of estimates applied in the valuation models by the investment managers. The sensitivity of this figure is discussed further in Note 16 and Note 18.
Pooled Property	Pooled Property investments are valued at closing bid prices if both bid and offer prices are published; or if single priced, at the closing single price. Pooled property funds have derived underlying assets that have been valued by independent external valuers on a fair value basis in accordance with industry guidelines.	The total Pooled Property investments in the financial statements are £321.6 million. There is a risk that this investment may be under or overstated in the accounts depending on use of estimates applied in the valuation models by the investment managers. The sensitivity of this figure is discussed further in Note 16 and Note 18.
Climate Risk	Climate risk is the potential for adverse consequences for human or ecological systems, recognising the diversity of values and objectives associated with such systems. In the context of climate change, risks can arise from potential impacts of climate change as well as human responses to climate change. The outcomes of these risks is unknown and as such there is a degree of estimation involved in the valuation of companies.	The total net investment assets of the Fund are £4,915.0 million. There is a risk that the investments may be over or understated in the accounts depending on the assumptions around policy responses to climate change in the valuation of investments. The impact would be across the whole Fund but not necessary equally across asset classes. We consider that there is a price risk – sensitivity of £850M which is discussed further in Note 16 and Note 18.

 

6. Events after the balance sheet date

There have been no events after the balance sheet date of 31 March 2024, and up to the date when these accounts were authorised that require any adjustments to these accounts.

7. Contributions Receivable

	2022/23 £000	2023/24 £000
By category
Employee’s contributions	37,980	39,521
Employer’s contributions
Normal contributions	96,231	114,257
Deficit recovery contributions	12,290	357
Augmentation contributions	420	883
Total	146,921	155,018
By authority
Scheduled bodies	94,278	101,458
Admitted bodies	3,864	3,217
Administrative Authority	48,779	50,343
Total	146,921	155,018

 

8. Transfers in from other pension funds

 

	2022/23 £000	2023/24 £000
Group transfers	-	-
Individual transfers	10,071	11,089
Total	10,071	11,089

 

9. Benefits payable

 

	2022/23 £000	2023/24 £000
By category
Pensions	118,076	131,847
Commutation and lump sum retirement benefits	19,491	20,305
Lump sum death benefits	2,844	3,456
Total	140,411	155,608
By authority
Scheduled bodies	83,518	93,156
Admitted bodies	4,309	4,890
Administrative Authority	52,584	57,562
Total	140,411	155,608

10. Payments to and on account of leavers

 

	2022/23 £000	2023/24 £000
Refunds to members leaving service	342	408
Group transfers	(1,595)	(137)
Individual transfers	7,536	13,580
Total	6,283	13,851

 

There was a group transfer in 2021/22 where members from East Sussex Fire Authority transferred to the Surrey Pension Fund this was recognised in the Fund's 2021/22 accounts at the estimated amount of £2.7m. The group transfer negotiations were not finalised until October 2023 so a revised estimate of £1.1m was included in the 2022/23 accounts resulting in a £1.6m reduction to the accrued amount. The finalised figure for the transfer paid in October 2023 was £1.0m this was a further reduction of £0.1m on the accrued figure for this transfer.

 

11. Management expenses

 

	2022/23 £000	2023/24 £000
Administrative costs	3,145	3,377
Investment management expenses	27,293	22,303
Oversight and governance costs	318	598
Total	30,756	26,278

 

11a) Investment management expenses – 2023/24

 

	Total   £000	Management Fees £000	Performance Related Fees £000	Transaction costs* £000
Bonds	85	85	-	-
Equities	500	500	-	-
Pooled investments
Fixed Income	1,972	1,935	-	37
Equity	7,110	6,513	-	597
Diversified growth funds	4,769	4,465	-	304
Pooled property investments	1,586	1,560	-	26
Private equity / infrastructure	6,174	6,695	(521)	-
	22,196	21,753	(521)	964
Custody	107
Total	22,303

*In addition to these costs, indirect costs are incurred through the bid-offer spread on investments within pooled investments.

 

2022/23	Total   £000	Management Fees £000	Performance Related Fees £000	Transaction costs* £000
Bonds	7	7	-	-
Equities	350	350	-	-
Pooled investments
Fixed Income	2,452	2,424	-	28
Equity	7,373	6,687	-	686
Diversified growth funds	5,903	5,275	-	628
Pooled property investments	1,455	1,437	-	18
Private equity / infrastructure	9,652	6,383	3,269	-
	27,192	22,563	3,269	1,360
Custody	101
Total	27,293

*In addition to these costs, indirect costs are incurred through the bid-offer spread on investments within pooled investments.

Investment management expenses are charged directly to the Fund as part of management expenses and are not included in, or netted off from, the reported return on investments. Where fees are netted off quarterly valuations by investment managers, these expenses are grossed up.

During the year, the Pension Fund incurred management fees which were deducted at source for 2023/24 of £4.0m (£4.2m in 2022/23) on its private equity investments, fees of £1.7m (£5.5m in 2022/23) on its infrastructure investments, fees of £9.2m (£10.7m in 2022/23) on investments in the ACCESS Pool and fees of £4.2m (£3.6m in 2022/23) on other mandates. These fees are deducted at the individual portfolio level rather than being paid directly by the Pension Fund.

12. Investment income

 

	2022/23 £000	2023/24 £000
Income from equities	4,994	5,561
Private equity/Infrastructure income	7,059	1,958
Pooled property investments	12,476	11,801
Pooled investments - unit trusts and other managed funds	47,352	47,288
Interest on cash deposits	1,787	2,263
Total	73,668	68,871

 

13. Other fund account disclosures

 

13a) Taxes on income

	2022/23 £000	2023/24 £000
Withholding tax – equities	(66)	(77)
Total	(66)	(77)

 

 

13b) External audit costs

	2022/23 £000	2023/24 £000
Payable in respect of external audit for 2021/22	12	-
Payable in respect of external audit for 2022/23	47	-
Payable in respect of external audit for 2023/24	-	98
Payable in respect of other services	10	-
Total	69	98
Grant	(10)	(11)
Total	59	87

 

 

14. Investments

 

	2022/23 £000	2023/24 £000
Investment assets
Bonds	93,755	234,909
Equities	235,630	395,972
Pooled Investments
Fixed Income	459,852	496,738
Equity	1,789,063	1,790,008
Diversified growth funds	819,737	818,621
Pooled property investments	328,542	321,613
Private equity/infrastructure	778,754	788,404
Derivative contracts:
Futures	53	39
	4,505,386	4,846,304
Cash deposits with Custodian	54,418	70,293
Other Investment balances (Note 21)	1,062	1,333
Total investment assets	4,560,866	4,917,930
Investment Liabilities (Note 22)	(1,061)	(2,682)
Derivative contracts:
Futures	-	-
Total Investment Liabilities	(1,061)	(2,682)
Net investment assets	4,559,805	4,915,248

 

14a) Reconciliation of movements in investments and derivatives

 

	Market value 1 April 2023   £000	Purchases during the year and derivative payments £000	Sales during the year and derivative receipts £000	Change in market value during the year £000	Market value         31 March 2024 £000
Bonds	93,755	136,000	-	5,154	234,909
Equities	235,630	128,422	(122,241)	154,161	395,972
Pooled investments	3,068,652	198,413	(317,250)	155,552	3,105,367
Pooled property investments	328,542	24,612	(21,112)	(10,429)	321,613
Private equity/infrastructure	778,754	40,004	(39,896)	9,542	788,404
	4,505,333	527,451	(500,499)	313,980	4,846,265
Derivative contracts
■ Futures	53	812	(1,323)	497	39
■ Forward currency contracts	-	-	-	-	-
	4,505,386	528,263	(501,822)	314,477	4,846,304
Other investment balances:
■ Cash deposits	54,418			169	70,293
■ Other Investment Balances	1,062				1,333
■ Investment Liabilities	(1,061)				(2,682)
Net investment assets	4,559,805			314,646	4,915,248

 

	Market value 1 April 2022   £000	Purchases during the year and derivative payments £000	Sales during the year and derivative receipts £000	Change in market value during the year £000	Market value         31 March 2023 £000
Bonds	134,975	-	-	(41,220)	93,755
Equities	237,482	65,356	(61,086)	(6,122)	235,630
Pooled investments	3,310,115	60,289	(223,622)	(78,130)	3,068,652
Pooled property investments	390,179	16,648	(21,597)	(56,688)	328,542
Private equity/infrastructure	514,383	326,052	(77,324)	15,643	778,754
	4,587,134	468,345	(383,629)	(166,517)	4,505,333
Derivative contracts
■ Futures	8	1,860	(1,785)	(30)	53
■ Forward currency contracts	-	-	-	-	-
	4,587,142	470,205	(385,414)	(166,547)	4,505,386
Other investment balances:
■ Cash deposits	90,216			4,286	54,418
■ Other Investment Balances	774				1,062
■ Investment Liabilities	(1,170)				(1,061)
Net investment assets	4,676,962			(162,262)	4,559,805

 

14b) Investments analysed by fund manager

 

	Market value 31 March 2023 £000	Market value 31 March 2023 %	Market value 31 March 2024 £000	Market value 31 March 2024 %
Investments in the ACCESS Pool
ACCESS - Alpha Opportunities (M&G)	293,179	6.4%	330,522	6.7%
ACCESS - Absolute Return (Ruffer)	478,853	10.5%	450,410	9.2%
ACCESS - Corporate Debt (M&G)	123,637	2.7%	131,119	2.7%
ACCESS - Global Alpha (Baillie Gifford)	187,271	4.1%	217,275	4.4%
ACCESS - Global Equity (Longview)	555,749	12.2%	521,637	10.6%
ACCESS - Real Return (Newton)	340,884	7.5%	368,211	7.5%
ACCESS - IFM Global Infrastructure	-	-	246,864	5.0%
ACCESS - UBS Passive	93,752	2.1%	234,918	4.8%
ACCESS - UBS Osmosis	236,761	5.2%	397,602	8.1%
	2,310,086	50.7%	2,898,558	59.0%
Investments held directly by the Fund
Adams St Partners	195,685	4.3%	189,505	3.9%
Atlas Infrastructure	100,931	2.2%	99,922	2.0%
East Sussex Pension Fund Cash	35,526	0.8%	52,172	1.1%
Harbourvest Strategies	179,466	3.9%	181,573	3.7%
M&G Real Estate Debt	43,036	0.9%	35,098	0.7%
IFM Global Infrastructure	234,104	5.1%	-	-
Pantheon	81,166	1.8%	87,045	1.8%
Prudential Infracapital	52,959	1.2%	49,369	1.0%
Schroders Property*	345,720	7.6%	336,032	6.8%
Storebrand Smart Beta & ESG	501,170	10.9%	465,360	9.5%
UBS Infrastructure Fund	36,335	0.8%	35,389	0.7%
Wellington Active Impact Equity	221,782	4.9%	247,275	5.0%
Wheb Active Impact Equity	221,839	4.9%	237,950	4.8%
	2,249,719	49.3%	2,016,690	41.0%
	4,559,805	100.0%	4,915,248	100.0%

 

* Schroders mandate is to oversee the East Sussex Pension Fund’s investments in a range of underlying property funds this is not a single investment into a Schroders property fund.

 

The following investments represent more than 5% of the investment assets of the scheme

 

Security	Market Value 31 March 2023 £000	% of total fund	Market value   31 March 2024 £000	% of total fund
ACCESS - Global Equity (Longview)	555,749	12.2%	521,637	10.6%
Storebrand Smart Beta & ESG Fund	501,170	11.0%	465,360	9.5%
ACCESS - Absolute Return (Ruffer)	478,853	10.5%	450,410	9.2%
ACCESS - Real Return (Newton)	340,884	7.5%	368,211	7.5%
ACCESS - Alpha Opportunities (M&G)	293,179	6.4%	330,522	6.7%
IFM Global Infrastructure	234,104	5.1%	246,864	5.0%
Wellington Active Impact Equity Fund	221,782	4.9%	247,275	5.0%

 

14c) Stock lending

 

The East Sussex Pension Fund has not operated a direct stock lending programme since 13 October 2008 but stock lending may occur in some of our pooled vehicles the fund is in invested in.

15. Analysis of derivatives

 

Objectives and policies for holding derivatives

Derivatives can be used to hedge liabilities or hedge exposures to reduce risk in the Fund. Derivatives maybe used to gain exposure to an asset more efficiently than holding the underlying asset. The use of derivatives is managed in line with the investment management agreement agreed between the Fund and the various investment managers.

1.         Futures

The Fund’s objective is to decrease risk in the portfolio by entering into futures positions to match assets that are already held in the portfolio without disturbing the underlying assets.

Type	Expires	Economic Exposure     £000	Market Value 31 March 2023 £000	Economic Exposure     £000	Market Value 31 March 2024 £000
Assets
UK Equity Futures	Less than one year	153	2	240	10
Overseas Equity Futures	Less than one year	875	51	1,239	29
Total assets			53		39
Liabilities
Overseas Equity Futures	Less than one year	-	-	-	-
Total liabilities			-		-
Net futures			53		39

 

 

2.         Forward foreign currency

In order to maintain appropriate diversification and to take advantage of overseas investment returns, a significant proportion of the Fund’s quoted equity portfolio is in overseas stock markets. The Fund can participate in forward currency contracts in order to reduce the volatility associated with fluctuating currency rates.

No forward foreign currency investments were held at the 31 March 24 (Nil 31 March 23)

3.         Options

The Fund wants to benefit from the potentially greater returns available from investing in equities but wishes to minimise the risk of loss of value through adverse equity price movements. The Fund buys equity option contracts that protect it from falls in value in the main markets in which the scheme invests.

No options investments were held at the 31 March 24 (Nil 31 March 23)

16.  Fair value – basis of valuation

 

The basis of the valuation of each class of investment asset is set out below. There has been no change in the valuation techniques used during the year. All assets have been valued using fair value techniques, which represent the highest and best price available at the reporting date

Description of asset	Valuation hierarchy	Basis of valuation	Observable and unobservable inputs	Key sensitivities affecting the valuations provided
Market-quoted investments	Level 1	Published bid market price ruling on the final day of the accounting period	Not Required	Not Required
Quoted bonds	Level 1	Fixed interest securities are valued at a market value based on current yields	Not Required	Not Required
Futures and options in UK bonds	Level 1	Published exchange prices at the year-end	Not Required	Not Required
Exchange traded pooled investments	Level 1	Closing bid value on published exchanges	Not Required	Not Required
Unquoted bonds	Level 2	Average of broker prices	Evaluated price feeds	Not Required
Forward foreign exchange derivatives	Level 2	Market forward exchange rates at the year-end	Exchange rate risk	Not Required
Overseas bond options	Level 2	Option pricing model	Annualised volatility of counterparty credit risk	Not Required
Pooled investments – Equity, Fixed Income and Diversified Growth Funds	Level 2	Values are not published on exchanges and are determined by the investment manager or responsible entity at prescribed valuation points.   Closing bid price where bid and offer prices are published   Closing single price where single price published	The valuation is undertaken by the investment manager or responsible entity and advised as a unit or security price.   Observable inputs are used.   The valuation standards followed in these valuations adhere to industry guidelines or to standards set by the constituent documents of the pool or the management agreement.	Not Required
Pooled investments – Property Funds	Level 3	Closing bid price where bid and offer prices are published Closing single price where single price published Investments in unlisted property funds are valued at the net asset value (NAV). The underlying real estate assets values have been derived by independent valuers on a fair value basis.	Pricing includes situations where there is little market activity, a net asset value calculations are used, a single price has been advised by the fund manager, underlying assets have been valued by independent external valuers on a fair value basis.	Valuations could be affected by the frequency of the independent valuations between the funds.
Unquoted equity – Private Equity / Infrastructure	Level 3	Comparable valuation of similar companies in accordance with International Private Equity and Venture Capital Valuation Guidelines (2012)	Observable inputs are subject to judgment by the respective manager but are applied in accordance with the appropriate industry guidelines.   Valuation techniques utilised includes management's cashflow projections, estimates of growth expectations and profitability, profit margin expectations and adjustments to current prices for similar assets      Valuations are audited as at 31 December, and the valuations as at 31 March reflect cash flow transactions since 31 December.	Valuations could be affected by material events occurring between the date of the financial statements provided and the pension fund’s own reporting date, by changes to expected cashflows, and by any differences between audited and unaudited accounts

 

Sensitivity of assets valued at level 3

Having analysed historical data and current market trends, and consulted with independent investment advisors, the Fund has determined that the valuation methods described above are likely to be accurate to within the following ranges and has set out below the consequential potential impact on the closing value of investments held at 31 March 2024 and 31 March 2023.

 

Asset Type	Assessed valuation range (+/-)	Values at 31 March 2024 £000	Value on increase £000	Value on decrease £000
Pooled Investment (1)	9%	35,096	38,255	31,937
Pooled property investments (2)	13%	321,612	363,422	279,802
Private Equity/Infrastructure (3)	24%	788,408	977,626	599,190
Total		1,145,116	1,379,303	910,929

 

 

 

Asset Type	Assessed valuation range (+/-)	Values at 31 March 2023 £000	Value on increase £000	Value on decrease £000
Pooled Investment (1)	9%	43,035	46,908	39,162
Pooled property investments (2)	13%	328,541	371,251	285,831
Private Equity/Infrastructure (3)	24%	778,754	962,540	594,968
Total		1,150,330	1,380,699	919,961

 

1.         All movements in the assessed valuation range derive from changes in the net asset value of the underlying real estate debt assets, the range in the potential movement of 9% is caused by how this value is measured.

2.         All movements in the assessed valuation range derive from changes in the net asset value of the underlying real estate assets, the range in the potential movement of 13% is caused by how this value is measured.

3.         All movements in the assessed valuation range derive from changes in the underlying profitability of component companies, the range in the potential movement of 24% is caused by how this profitability is measured.

16a) Fair value hierarchy

 

The following table provides an analysis of the financial assets and liabilities of the pension fund grouped into Levels 1 to 3, based on the level at which the fair value is observable.

Values at 31 March 2024

	Quoted market price   Level 1 £000	Using observable inputs   Level 2 £000	With Significant unobservable inputs Level 3 £000	Total         £000
Financial assets at fair value through profit and loss	397,345	3,305,176	1,145,116	4,847,637
Non-financial assets at fair value through profit and loss	-	-	-	-
Financial liabilities at fair value through profit and loss	(39)	(2,643)	-	(2,682)
Net investment assets	397,306	3,302,533	1,145,116	4,844,955

 

 

Values at 31 March 2023

	Quoted market price   Level 1 £000	Using observable inputs   Level 2 £000	With Significant unobservable inputs Level 3 £000	Total         £000
Financial assets at fair value through profit and loss	236,747	3,119,370	1,150,330	4,506,447
Non-financial assets at fair value through profit and loss	-	-	-	-
Financial liabilities at fair value through profit and loss	(53)	(1,008)	-	(1,061)
Net investment assets	236,694	3,118,362	1,150,330	4,505,386

 

 

16b) Transfers between levels 1 and 2

 

During 2023/24 the fund has transferred no financial assets between levels 1 and 2.

16c) Reconciliation of fair value measurements within level 3

 

Period 2023/24 (values in £000)

	Market value 1 April 2023	Transfers into Level 3	Transfers out of Level 3	Purchases during the year	Sales during the year	Unrealised gains/(losses)	Realised gains/(losses)	Market value 31 March 2024
Pooled investments	43,035	-	-	173	(10,791)	2,679	-	35,096
Pooled property investments	328,541	-	-	24,612	(21,112)	(17,109)	6,680	321,612
Private Equity/Infrastructure	778,754	-	-	40,004	(37,919)	(7,804)	15,373	788,408
Total	1,150,330	-	-	64,789	(69,822)	(22,234)	22,053	1,145,116

*Reconciliation to Change in market value during the year in Note 14a

 

Level	Unrealised gains/(losses)	Realised gains/(losses)	Change in market value during the year
1 and 2	406,039	(91,212)	314,827
3	(22,234)	22,053	(181)
Total	383,805	(69,159)	314,646

 

 

Period 2022/23 (values in £000)

	Market value 1 April 2022	Transfers into Level 3	Transfers out of Level 3	Purchases during the year	Sales during the year	Unrealised gains/(losses)	Realised gains/(losses)	Market value 31 March 2023
Pooled investments	39,733	-	-	11,899	(7,258)	(1,339)	-	43,035
Pooled property investments	390,179	-	-	16,648	(21,597)	(61,429)	4,740	328,541
Private Equity/Infrastructure	514,383	-	-	326,052	(77,325)	(18,049)	33,693	778,754
Total	944,295	-	-	354,599	(106,180)	(80,817)	38,433	1,150,330

*Reconciliation to Change in market value during the year in Note 14a

 

Level	Unrealised gains/(losses)	Realised gains/(losses)	Change in market value during the year
1 and 2	(156,344)	36,463	(119,881)
3	(80,817)	38,433	(42,384)
Total	(237,161)	74,896	(162,265)

 

17.  Classification of financial instruments

 

Accounting policies describe how different asset classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of financial assets and liabilities (including cash) by category and net assets statement heading. No financial assets were reclassified during the accounting period. The Pension Fund believe that the assets and liabilities held at amortised cost have no material difference to the fair value of the assets and liabilities.

 

31 March 2023                                                                                   31 March 2024

 

*Reconciliation to Current Assets Note 21

	2022/23 £000	2023/24 £000
Cash held by ESCC	9,332	5,031
Debtors	13,973	15,163
Current Assets	23,305	20,194

 

 

 

 

17a) Net gains and losses on financial instruments

 

	31 March 2023 £000	31 March 2024 £000
Financial assets
Fair value through profit and loss	(166,553)	314,645
Amortised cost – realised gains on derecognition of assets	-	-
Amortised cost – unrealised gains	4,274	1
Financial liabilities
Fair value through profit and loss	17	-
Amortised cost – realised gains on derecognition of assets	-	-
Amortised cost – unrealised gains	-	-
Total	(162,262)	314,646

 

18. Nature and extent of risks arising from financial instruments

 

Risk and risk management

 

The Fund’s primary long-term risk is that the Fund’s assets will fall short of its liabilities (i.e., promised benefits payable to members). Therefore, the aim of investment risk management is to minimise the risk of an overall reduction in the value of the Fund and to maximise the opportunity for gains across the whole portfolio. The Fund achieves this through asset diversification to reduce exposure to market risk (price risk, currency risk and interest rate risk) and credit risk to an acceptable level. In addition, the Fund manages its liquidity risk to ensure there is sufficient liquidity to meet the forecast cash flows. The Pension Committee also recognises climate change risk as a financial risk to the investments of the Fund. The Fund manages these investment risks as part of its overall risk management program.

Responsibility for the Fund’s risk management strategy rests with the Pension Committee. Risk management policies are established to identify and analyse the risks faced by the Fund’s pensions operations. Policies are reviewed regularly to reflect changes in activity and in the market conditions.

Market risk

 

Market risk is the risk of loss from fluctuations in equity and commodity prices, interest and foreign exchange rates and credit spreads. The Fund is exposed to market risk from its investment activities, particularly through its equity holdings. The level of risk exposure depends on market conditions, expectations of future price and yield movements and the asset mix.

The objective of the Fund’s risk management strategy is to identify, manage and control market risk exposure within acceptable parameters, whilst optimising the return on risk.

In general, excessive volatility in market risk is managed through the diversification of the portfolio in terms of geographical and industry sectors and individual securities. To mitigate market risk, the Fund and its investment advisors undertake appropriate monitoring of market conditions and benchmark analysis.

The Fund manages these risks in two ways:

1.         the exposure of the Fund to market risk is monitored through a factor risk analysis, to ensure that risk remains within tolerable levels

2.         specific risk exposure is limited by applying risk-weighted maximum exposures to individual investments.

Equity futures contracts and exchange traded option contracts on individual securities may also be used to manage market risk on equity investments. It is possible for over-the-counter equity derivative contracts to be used in exceptional circumstances to manage specific aspects of market risk.

Other price risk

 

Other price risk represents the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or foreign exchange risk), whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all such instruments in the market.

The Fund is exposed to share and derivative price risk. This arises from investments held by the Fund for which the future price is uncertain. All securities investments present a risk of loss of capital. Except for shares sold short, the maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. Possible losses form shares sold short is unlimited.

The Fund’s investment managers mitigate this price risk through diversification and the selection of securities and other financial instruments is monitored by the fund to ensure it is within limits specified in the Fund’s investment strategy.

Other price risk – sensitivity analysis

Following analysis of historical data and expected investment return movement during the financial year, in consultation with the Fund’s investment advisors, the Fund has determined that the following movements in market price risk are reasonably possible for the 2023/24 reporting period:

Asset Type	Potential Market Movements (+/-)
Index Linked	11.5%
Other Bonds	6.8%
UK Equities	20.5%
Global Equities	21.0%
Absolute Return	12.5%
Pooled Property Investments	13.0%
Private Equity	26.0%
Infrastructure Funds	15.0%

 

The potential price changes disclosed above are broadly consistent with a one-standard deviation movement in the value of the assets. The sensitivities are consistent with the assumptions contained in the investment advisors’ most recent review. This analysis assumes that all other variables, in particular foreign currency exchange rates and interest rates, remain the same.

Had the market price of the Fund investments increased/decreased in line with the above, the change in the net assets available to pay benefits in the market price would have been as follows.

Asset Type	Values at 31 March 2024 £000	Value on increase £000	Value on decrease £000
Index Linked	234,909	261,924	207,894
Other Bonds	496,738	530,516	462,960
UK Equities	14,789	17,821	11,757
Global Equities	2,171,190	2,627,140	1,715,240
Absolute Return	818,621	920,949	716,293
Pooled Property Investments	321,613	363,423	279,803
Private Equity	616,601	776,917	456,285
Infrastructure Funds	171,804	197,575	146,033
Net Derivative Assets*	39	(347)	425
Total assets available to pay benefits	4,846,304	5,696,918	3,996,690

*Movement on net derivative assets is based on the underlying economic exposure of the derivative instrument.

Asset Type	Values at 31 March 2023 £000	Value on increase £000	Value on decrease £000
Index Linked	93,755	105,006	82,504
Other Bonds	459,852	497,071	422,633
UK Equities	9,639	11,615	7,663
Global Equities	2,015,054	2,438,215	1,591,893
Absolute Return	819,737	922,204	717,270
Pooled Property Investments	328,542	371,252	285,832
Private Equity	608,293	766,449	450,137
Infrastructure Funds	170,461	196,030	144,892
Net Derivative Assets	53	(333)	439
Total assets available to pay benefits	4,505,386	5,307,509	3,703,263

 

Interest rate risk

 

The Fund invests in financial assets for the primary purpose of obtaining a return on investments. These investments are subject to interest rate risks, which represent the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Fund’s interest rate risk is routinely monitored by the Fund and its investment advisors in accordance with the risk management strategy, including monitoring the exposure to interest rates and assessment of actual interest rates against the relevant benchmarks.

The Fund’s direct exposure to interest rate movements as of 31 March 2024 and 31 March 2023 is set out below. These disclosures present interest rate risk based on the underlying financial assets at fair value.

Interest rate risk sensitivity analysis       

The Fund recognises that interest rates can vary and can affect both income to the Fund and the value of the net assets available to pay benefits. A 100-basis point (bps) movement in interest rates is consistent with the level of sensitivity applied as part of the Fund's risk management strategy. The Fund's investment adviser has advised that this is consistent with an annual one standard deviation move in interest rates, where interest rates are determined by the prices of fixed interest UK government bonds.

The analysis that follows assumes that all other variables, in particular exchange rates, remain constant, and shows the effect in the year on the net assets available to pay benefits of a +/- 100 bps change in interest rates:

Asset type	Carrying amount as at 31 March 2024 £000	Impact of 1% increase   £000	Impact of 1% decrease   £000
Cash and cash equivalents	70,293	70,293	70,293
Cash balances	5,031	5,031	5,031
Fixed interest securities	496,738	501,705	491,771
Index linked securities	234,909	234,909	234,909
Total change in assets available	806,971	811,938	802,004

 

Asset type

Carrying amount as at 31 March 2023 £000

Impact of 1% increase