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 75 days 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   £000	Impact of 1% decrease   £000
Cash and cash equivalents	54,418	54,418	54,418
Cash balances	9,332	9,332	9,332
Fixed interest securities	459,852	464,451	455,253
Index linked securities	93,755	93,755	93,755
Total change in assets available	617,357	621,956	612,758

 

Income Source	Interest receivable 2023/24 £000	Value on 1% increase   £000	Value on 1% decrease   £000
Cash deposits/cash and cash equivalents	2,263	3,016	1,510
Fixed interest securities	15,705	15,705	15,705
Index linked securities	-	2,349	(2,349)
Total change in assets available	17,968	21,070	14,866

                       

Income Source	Interest receivable 2022/23 £000	Value on 1% increase   £000	Value on 1% decrease   £000
Cash deposits/cash and cash equivalents	1,787	2,425	1,149
Fixed interest securities	16,702	16.702	16,702
Index linked securities	-	938	(938)
Total change in assets available	18,489	20,065	16,913

 

This analysis demonstrates that a 1% increase in interest rates will not affect the interest received on fixed interest assets but will reduce their fair value, and vice versa. Changes in interest rates do not impact on the value of cash/cash equivalent balances but they will affect the interest income received on those balances.

Currency risk

Currency risk represents the risk that future cash flows will fluctuate because of changes in foreign exchange rates. The Fund is exposed to currency risk on any cash balances and investment assets not denominated in pound sterling. Following analysis of historical data in consultation with the Fund investment advisors, the Fund considers the likely volatility associated with foreign exchange rate movements not more than 10%. A 10% strengthening/weakening of the pound against the various currencies in which the Fund holds investments would increase/decrease the net assets available to pay benefits as follows:

Currency exposure - asset type	Values at 31 March 2024   £000	Potential Market movement £000	Value on increase   £000	Value on decrease   £000
Overseas quoted securities	381,184	37,356	418,540	343,828
Overseas unit trusts	3,397,030	332,909	3,729,939	3,064,121
Total change in assets available	3,778,214	370,265	4,148,479	3,407,949

 

Currency exposure - asset type	Values at 31 March 2023   £000	Potential Market movement £000	Value on increase   £000	Value on decrease   £000
Overseas quoted securities	225,992	22,147	248,139	203,845
Overseas unit trusts	3,387,552	331,980	3,719,532	3,055,572
Total change in assets available	3,613,544	354,127	3,967,671	3,259,417

 

Climate Change risk

Current asset pricing may not take into account the emerging climate risk to the underlying holdings, markets may be over or underestimating the value of the assets and could lead to future price volatility. Climate change will affect economic growth and there is uncertainty in the economic outlook due to climate change which could lead to lower returns on equities or risk to future discounted cash flows. High carbon emitters are more exposed to risks from climate change particularly from a transition risk perspective. The Fund mitigates this climate change market 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. In addition, the Fund is underweighted in high carbon emitting stocks such as fossil fuel companies and carries out carbon foot printing of the Fund’s investments and asset managers and the Fund through its collaborative partners engage with corporate management of the underling holdings to ensure companies are responsibly managing their climate change risks. The Fund’s Taskforce for Climate Related Financial Disclosure (TCFD) report is included in the Annual Report.

Credit risk

Credit risk represents the risk that the counterparty to a transaction or a financial instrument will fail to discharge an obligation and cause the Fund to incur a financial loss. The market values of investments generally reflect an assessment of credit in their pricing and consequently the risk of loss is implicitly provided for in the carrying value of the Fund’s financial assets and liabilities.

In essence, the Fund’s entire investment portfolio is exposed to some form of credit risk, with the exception of the derivatives positions, where the risk equates to the net market value of a positive derivative position. However, the selection of high-quality counterparties, brokers and financial institutions minimise credit risk that may occur through the failure to settle a transaction in a timely manner.

Contractual credit risk is represented by the net payment or receipts that remains outstanding, and the cost of replacing the derivative position in the event of a counterparty default. The residual risk is minimal due to the various insurance policies held by the exchanges to cover defaulting counterparties.

Credit risk on over-the-counter derivative contracts is minimised as counterparties are recognised financial intermediaries with acceptable credit ratings determined by a recognised rating agency.

The Fund believes it has managed its exposure to credit risk and has had no experience of default or uncollectable deposits in recent years.

Summary	Asset value as at 31 March 2023 £000	Asset value as at 31 March 2024 £000
Overseas Treasury bills	17,087	15,336
NT custody cash accounts	37,332	54,958
Total overseas assets	54,419	70,294

 

Liquidity risk

Liquidity risk represents the risk that the Fund will not be able to meet its financial obligations as they fall due. The Fund therefore takes steps to ensure that there are adequate cash resources to meet its commitments. This will particularly be the case for cash from the cash flow matching mandates from the main investment strategy to meet the pensioner payroll costs; and also cash to meet investment commitments.

The Fund has immediate access to its cash holdings and has access to an overdraft facility for short-term cash needs. This facility is only used to meet timing differences on pension payments. As these borrowings are of a limited short-term nature, the Fund’s exposure to liquidity risk is considered negligible.

All financial liabilities at 31 March 2024 are due within one year.

Refinancing risk

The key risk is that the Fund will be bound to replenish a significant proportion of its pension Fund financial instruments at a time of unfavourable interest rates. The Fund does not have any financial instruments that have a refinancing risk as part of its treasury management and investment strategies.

 

19. Funding arrangements

 

Introduction

The last full triennial valuation of the Fund was carried out as at 31 March 2022 as required under Regulation 62 of the Local Government Pension Scheme Regulations 2013 (the Regulations) and in accordance with the Funding Strategy Statement of the Fund. The results were published in the triennial valuation report dated 31 March 2023.

Asset value and funding level

 

The results for the Fund at 31 March 2022 were as follows:

•           The market value of the Fund’s assets as at 31 March 2022 was £4.69bn.

•           The Fund had a funding level of 123% i.e., the value of assets for valuation purposes was 123% of the value that they would have needed to be to pay for the benefits accrued to that date, based on the assumptions used. This corresponded to a surplus of £858m.

Contribution rates

The employer contributions rates, in addition to those paid by the members of the Fund, are set to be sufficient to meet:

•           the annual accrual of benefits allowing for future pay increases and increases to pensions in payment when these falls due.

•           plus, an amount to reflect each participating employer’s notional share of the Fund’s assets compared with 100% of their liabilities in the Fund, in respect of service to the valuation date.

The primary rate of contribution on a whole Fund level was 20.2% of payroll p.a. The primary rate as defined by Regulation 62(5) is the employer’s share of the cost of benefits accruing in each of the three years beginning 1 April 2023.

In addition, each employer pays a secondary contribution as required under Regulation 62(7) that when combined with the primary rate results in the minimum total contributions. This secondary rate is based on their particular circumstances and so individual adjustments are made for each employer.

Details of each employer’s contribution rate are contained in the Rates and Adjustments Certificate in the triennial valuation report.

 

Assumptions

The key assumptions used to value the liabilities at 31 March 2022 are summarised below:

Assumptions	Assumptions used for the 2022 valuation
Financial assumptions Market date	31 March 2022
CPI inflation	2.9% p.a.
Long-term salary increases	3.9% p.a.
Discount rate	4.6% p.a.
Demographic assumptions
Post-retirement mortality
Base tables	Based on Club Vita analysis
Projection model	CMI 2021
Long-term rate of improvement	1.25% p.a.
Smoothing parameter	7.0
Initial addition to improvements Males Females	0.5% p.a. 0.5% p.a.
2020/21 weighting parameter	5%

 

Full details of the demographic and other assumptions adopted as well as details of the derivation of the financial assumptions used can be found in the 2022 valuation report.

Updated position since the 2022 valuation

Assets

Investment returns on the Scheme’s assets over the year to 31 March 2024 have been strong, estimated at 8% p.a. The Fund also has a positive cash flow, and so the market value of assets at 31 March 2024 has increased since the formal valuation.

Liabilities

The key assumption which has the greatest impact on the valuation of liabilities is the real discount rate (the discount rate relative to CPI inflation) – the higher the real discount rate the lower the value of liabilities. As at 31 March 2024, the real discount rate is estimated to be higher than at the 2022 valuation due to a reduction in the long term rate of inflation.

The value of liabilities will have increased due to the accrual of new benefits net of benefits paid and interest on the liabilities.

The 2024 pension increase order is 6.7%. The increase in liabilities associated with this has however been more than offset by the reduction in the long-term inflation assumption. This short-term high inflation and longer term lower inflation is broadly consistent with what was assumed at the 2022 formal valuation. 

 

Overall position

On balance, we estimate that the funding position has reduced when compared on a consistent basis to 31 March 2022.

The change in the real discount rate since 31 March 2022 will place a lower value on the cost of future accrual which results in a lower primary contribution rate. The impact on secondary contributions will vary by employer.

However, the next formal valuation will be carried out as at 31 March 2025 with new contribution rates set from 1 April 2026. As part of the 2025 valuation, the Fund and us as the Fund Actuary will work together in setting the assumptions for the valuation.

 

 

Dr Barry McKay FFA

Partner, Barnett Waddingham LLP

 

20. Actuarial present value of promised retirement benefits

 

Introduction

We have been instructed by East Sussex County Council, the administering authority to the East Sussex Pension Fund (the Fund), to undertake pension expense calculations in respect of pension benefitsprovided by the Local Government Pension Scheme (the LGPS) to members of the Fund as at 31 March 2024. We have taken account of current LGPS Regulations, as amended, as at the date of this report.

 

This report is addressed to the administering authority and its advisers; in particular, this report is likely to be of relevance to the Fund’s auditor.

 

The LGPS is a defined benefit statutory scheme administered in accordance with the Local Government Pension Scheme Regulations 2013 and currently provides benefits based on career average revalued earnings. Full details of the benefits being valued are as set out in the Regulations and summarised on the LGPS website (www.lgpsregs.org/) and the Fund’s membership booklet (www.lgpsmember.org/).

 

This report is prepared in accordance with our understanding of IAS26. This advice complies with Technical Actuarial Standard 100: General Actuarial Standards (TAS 100) as issued by the Financial Reporting Council (FRC). In calculating the disclosed numbers we have adopted methods and assumptions that are consistent with IAS19.

 

This report should be read in conjunction with the post accounting date briefing note for disclosures as at 31 March 2024.

 

We would be pleased to answer any questions arising from this report.

 

Barry McKay FFA

Partner

 

Data used

 

We have used the following items of data which we received from the administering authority:

Results of the latest funding valuation -                                31 March 2022    

Results of the previous IAS26 report -                                 31 March 2023    

Fund asset statement as at                -                                 31 March 2024     

Fund income and expenditure items to-                                31 March 2024

Details of any new unreduced early retirement payments out 31 March 2024 

 

 

The data has been checked for reasonableness and we are happy that the data is sufficient for the purposes of our advice.

Although some estimation of the data to the accounting date may be required, we do not believe that they are likely to have a material effect on the results of this report.

We are not aware of any material changes or events since we received the data.

Employer membership statistics

 

The table below summarises the membership data at 31 March 2022

Member data summary

	Number	Salaries/Pensions £000	Average age
Actives	24,672	500,451	47
Deferred pensioners	39,993	48,986	51
Pensioners	23,182	116,050	72

 

Payroll

The total pensionable payroll for the employers in the Fund is set out below and is based on information provided to us by the administering authority. Estimated payroll of the year to 31 March 2024: £580,243,000

 

Unfunded benefits

We have excluded any unfunded benefits as these are liabilities of employers rather than the Fund.

Early retirements

We have requested data on any early retirements in respect of the Fund from the administering authority for the year ending 31 March 2024. We have been notified of 33 new early retirements during the year which were not allowed for at the previous accounting date. The total annual pension that came into payment was £363,000.

Assets

The return on the Fund (on a bid value to bid value basis) for the year to 31 March 2024 is calculated to be -8.02% based on the Fund asset statements and Fund cashflows as set out in the Data section preceding this section.

 

 

The estimated asset allocation for the Fund is as follows (noting that due to rounding they may not total 100%):

 

Asset breakdown	31 Mar 2023 £000	31 Mar 2023 %	31 Mar 2024 £000	31 Mar 2024 %
Equities	3,219,201	71%	3,375,056	69%
Bonds	553,606	12%	731,646	15%
Property	733,175	16%	740,347	15%
Cash	54,520	1%	69,379	1%
Total	4,560,502	100%	4,916,428	100%

 

Actuarial methods and assumptions

 

Valuation approach

To value the Fund’s liabilities at 31 March 2024, we roll forward the value of the liabilities calculated for the latest full funding valuation using financial assumptions compliant with IAS19 and FRS102. This will involve an update this year to be based on the fund’s 2022 funding valuation.

The full actuarial valuation involved projecting future cashflows to be paid from the Fund and placing a value on them. These cashflows include pensions currently being paid to members of the Fund as well as pensions (and lump sums) that may be payable in future to members of the fund or their dependants. These pensions are linked to inflation and will normally be payable on retirement for the life of the member or a dependant following a member’s death.

It is not possible to assess the accuracy of the estimated value of liabilities as at 31 March 2024 without completing a full valuation. However, we are satisfied that the approach of rolling forward the previous valuation data to 31 March 2024 should not introduce any material distortions in the results provided that the actual experience of the employer and the fund has been broadly in line with the underlying assumptions, and that the structure of the liabilities is substantially the same as at the latest formal valuation. From the information we have received there appears to be no evidence that this approach is inappropriate.

As required under the IAS19, we have used the projected unit credit method of valuation.

Experience items allowed for since the previous accounting date

 

2023 valuation update

The liability roll forward will be updated to be based on the fund’s 2022 valuation. This update ensures the accounting results are based on the latest information available. The impact of this update will result in experience items on the liabilities and the assets, and could be a positive or negative effect. The experience item reflects how experience over the intervaluation period has differed from that assumed as part of the roll forward approach.

 

Further detail on the experience item can be provided on request and will incur additional fees.

 

Allowance for inflation experience

Our default approach is to allow for actual pension increases up to the accounting date as confirmed by the HM Treasury Order. In addition we allow for actual inflation experience from September 2023 to the most recent known date available. Any difference between this and the pension increase previously assumed will give rise to an experience item.

For most employers, an allowance for part-year inflation experience was made when preparing their 2023 year-end accounting balance position. This would have allowed for ONS CPI (Consumer Price Index) inflation observed over the year to March 2024.

 

Asset ceilings

The accounting standards state that is an employer has an accounting surplus to the extent that its is able to recover the surplus either through reduced contribution in the future, or through refunds. The present value of such economic benefits is commonly referred to as the “asset ceiling”.

Our default approach for all employers will be to allow for an asset ceiling. For employers accounting under IAS19, the calculation will be based on our interpretation of IFRIC 14 “The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”. For employers reporting under FRS102, the accounting standards are less prescriptive regarding the methodology underpinning an asset ceiling calculation, however in the absence of any other guidance we consider it reasonable to have regard to IFRIC 14 which applies under the international standard.

IFRIC 14 itself is open to multiple interpretation and, since the last accounting date, auditors’ preferences have been evolving and have only recently coalesced around a generally preferred approach. Guidance was also released from CIFA dated November 23 regarding their interpretation of IFRIC 14’s applicability in the LGPS. In light of these developments, we intend to adopt the below methodology as standard:

Asset ceiling methodology

Our calculations assume that:

·         There is no unconditional right to a refund of surplus, as such a payment would be at the discretion of the relevant LGPS Fund.

·         The appropriate time horizon to consider for calculating the economic benefit associated with potential reductions in future contributions will depend on the type of body and the nature of any applicable admission agreement:

o   If the employer is a scheduled body, or an admission body which is open to new members with no anticipated contract end date, we will assume they will participate indefinitely. Our calculations will therefore assess the cost of future accrual, and contributions payable in respect of future accrual, in ‘perpetuity’.

o   If the employer is an admitted body which is closed to new members, the appropriate time horizon to consider will be shorter of any anticipated contract end date and the average future working lifetime of active members. Our calculations will therefore assess the cost of future accrual, and contributions payable in respect of future accruals, for so long as that reduction is expected to remain in force

 

·         If the employer is currently already receiving a reduction in contributions in respect of a funding surplus, these will be deducted from the contributions that would otherwise be required to be paid towards the cost of future accrual, for so long as that reduction is expected to remain in force.

·         For Employers reporting under IAS 19 only, any requirement to make contributions towards a funding deficit is considered as an additional minimum liability. The time horizon for assessment of the additional minimum liability is the deficit recovery period used to determine the level of secondary contributions certified.

 

McCloud/Sargeant judgments

Regulations in respect of McCloud and Sargeant judgments came into force on 1 October 2023. These may affect the value of the liabilities in respect of accrued benefits and therefore an allowance may need to be included in an employer’s report.

 

Impact on liabilities

An allowance for the McCloud remedy will have been made in the liabilities which is consistent with the method adopted at the last actuarial valuation.

 

 

Settlements and curtailments

 

Employers accounting under the IAS19 standard

When determining any past service cost or gain or loss on settlement IAS19 requires that the net defined benefit liability is remeasured using current assumptions and the fair value of plan assets at the time of the event. Common events for LGPS employers that this may apply to include outsourcings and unreduced early retirements.

Additional calculations are required to determine the cost before and after each event, and to rebase the standard roll forward approach on updated assumptions based on each event date. The extra remeasurement does not need to be applied where the application of that remeasurement is immaterial. The assessment of materiality will be subject to each employer and auditor’s discretion. We can provide additional information to help assess materiality but we cannot conclude whether an event is material or not.

Goodwin case

We do not intend to make any adjustments to accounting valuations as a result of the Goodwin case.

Guaranteed Minimum Pension (GMP) equalisation and indexation

 

Impact of Lloyds judgment on past transfer values

The latest news on the Lloyds Banking Group court case involved a ruling that, in cases where a member exercised their right to a transfer value out of the scheme, the trustee had the duty to make a transfer payment that reflects the member’s right to equalised benefits and remains liable if an inadequate transfer payment had been paid.

It is not yet known if, or how, this will affect the LGPS. We await further guidance from CIPFA and DLUHC on this. Whilst no guidance nor data is available, our standard approach currently is to make no allowance to reflect this judgment.

 

GMP Indexation Consultation response

On 23 March 2021, the Government published the outcome to its Guaranteed Minimum Pension Indexation consultation, concluding that all public service pension schemes, including the LGPS, will be directed to provide full indexation to members with a GMP reaching State Pension Age (SPA) beyond 5 April 2021. This is a permanent extension of the existing ‘interim solution’ that has applied to members with a GMP reaching SPA on or after 6 April 2016.

Our assumption for GMP is that the Fund will pay limited increases for members that have reached SPA by 6 April 2016, with the Government providing the remainder of the inflationary increase. For members that reach SPA after this date, we assume that the fund will be required to pay the entire inflationary increase. Therefore, our assumption is consistent with the consultation outcome and we do not believe we need to make any adjustments to the value placed on the liabilities as a result of the above outcome.

Demographic assumptions

 

Mortality assumption

The key demographic assumption is the mortality assumption and there are two main steps in setting this assumption:

•              Making a current assumption of members’ mortality (the base mortality); and

•              Projecting these current mortality rates into the future, allowing for further potential improvements in mortality. Future members’ mortality is almost impossible to predict and therefore there is a lot of judgment involved and we naturally have to refine our view on this over time.

 

Base table mortality

The base table mortality assumptions adopted for the Funds’ latest triennial funding valuations were best estimate assumptions and we will therefore be using the same assumptions as standard for accounting.

Our standard approach is to update the mortality assumption to be based on those adopted for the Fund’s 2022 actuarial valuation.

 

Future improvements to mortality

To project future improvements in mortality, we use a model prepared by the Continuous Mortality Investigation Bureau (CMI). The CMI update their model on an annual basis, incorporating the latest mortality data in the national population.

Our standard approach is to update the improvements model to be based on that adopted for the fund’s 2022 actuarial valuation.

 

The assumed life expectations from age 65 are:

Life expectancy from age 65 (years)	31 Mar 2023	31 Mar 2024
Males – retiring today	21.1	20.9
Females – retiring today	24.1	23.8
Males – retiring in 20 years	22.2	21.9
Females – retiring in 20 years	25.6	25.4

 

Unless stated otherwise in the employer’s accounting report, the other key demographic assumptions are:

Commutation

Members will exchange pension to get 50% of the maximum available cash on retirement. For every £1 of pension that members commute, they will receive a cash payment of £12 as set out in the Regulations.

 

Normal retirement

Members will retire at one retirement age for all tranches of benefit, which will be the pension weighted average tranche retirement age.

 

50:50 take up

The proportion of the membership that had taken up the 50:50 option at the previous valuation date will remain the same.

 

Financial assumptions

The key financial assumptions required for determining the defined benefit obligation for accounting are the discount rate, linked to high quality corporate bond yields, and the rate of future inflation.

We set out our standard approach to the derivation of these assumptions and sample assumptions using market conditions at 31 March 2024.

 

Discount rate

Under IAS19 the discount rate should be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. Our standard approach to derive the appropriate discount rate is known as the Single Equivalent Discount Rate (SEDR) methodology.

We use sample cashflows for employers at each year and derive the single discount rate which results in the same liability value as that which would be determined using a full yield curve valuation (essentially each year’s cashflows has a different discount rate). In carrying out this derivation we use the annualised Merrill Lynch AA rated corporate bond yield curve and assume the curve is flat beyond the 30-year point.

The sample cashflows are prepared by Barnett Waddingham on a triennial basis. Employers are grouped together into ‘maturity brackets’ based on the duration of their future cashflows. Each maturity bracket is linked to a term on the yield curve, up to the 30-year point, resulting in 30 sets of sample cashflows. All employers in the same maturity bracket share the same set of sample cashflows which is used at each accounting date to set the relevant financial assumptions.

The new yield curve at the accounting date is used to discount the sample cashflows to calculate a single equivalent discount rate proposed for use in the employer’s accounting valuation.

Inflation expectations

Whilst the change in corporate bond yields is an important factor affecting the valuation of the liabilities, so too is the assumed level of future inflation as this determines the rate at which the benefits increase.

IAS19 suggests that in assessing future levels of long-term inflation we should use assumptions that would result in a best estimate of the ultimate cost of providing benefits whilst also giving consideration to the gilt market (in line with general price levels) to give us an indication of market expectation.

 

Pension increases in the LGPS are expected to be based on the Consumer Prices Index (CPI). As there is limited market information on CPI-linked assets, to derive our CPI assumption we first make an assumption on the Retail Prices Index (RPI) then make an adjustment.

 

Retail Prices Index (RPI) assumption

Similar to the SEDR approach described above we intend to adopt a Single Equivalent Inflation Rate (SEIR) approach in deriving an appropriate RPI assumption.

The SEIR adopted is such that the single assumed rate of inflation results in the same liability as that resulting from applying the BoE implied inflation curve. The BoE implied inflation curve is assumed to be flat beyond the 40 year point.

Consistent with past period, our view remains that gilt-implied inflation rates are distorted bu supply and demand factors at medium and longer terms. We have therefore allowed for an Inflation Risk Premium (IRP) which varies by the term of the employer’s liabilities with the resulting assumption falling between 0.0% p.a. and 0.25% p.a. (for terms ranging from 1 year up to 30 years).

Consistent with the SEDR approach, assumptions are rounded to the nearest 0.05%

 

Difference between RPI and CPI

It is expected that RPI will be on average 1.0% p.a. lower than it would have otherwise been from 2030 as a result of the proposed alignment of RPI to CPIH (and CPI) from that date. We have therefore assumed that the annual increase in CPI inflation will be 1.0% p.a. lower than the market implied increases in RPI for each year prior to 2030, and will be in line with RPI inflation thereafter. This results in an assumed gap between the two inflation measures of between 0.20% p.a. and 0.75% p.a. depending on the term of the liabilities (for terms ranging from 30 years down to 5 years).

 

Consumer Prices Index (CPI) assumption

Using a similar approach described above to calculate the SEIR for our RPI assumption, we have calculated a single equivalent rate of CPI increase that results in the same liability value as would be calculated by applying the implied CPI curve.

 

Salary increases

The Fund will adopt the standard approach which is in line with the latest actuarial valuation. For more information please see the latest valuation report.

Results and disclosures

We estimate that the net asset as at 31 March 2024 is assets of £763,103

The results of our calculations for the year ended 31 March 2024 are set out below. The figures presented in this report are prepared only for the purposes of FRS102. In particular, they are not relevant for calculations undertaken for funding purposes or for other statutory purposes under UK pensions legislation

Statement of financial position as at 31 March 2024

Net pension asset in the statement of financial position as at	31-Mar-22 £000	31-Mar-23 £000	31-Mar-24 £000
Present value of defined benefit obligation *	(5,669,531)	(4,042,513)	(4,153,325)
Fair value of Fund assets (bid value)	4,687,667	4,560,502	4,916,428
Net (Liability)/Assets in balance sheet	(981,864)	517,989	763,103

* The present value of the defined benefit obligation consists of £4,115,901,000 in respect of vested obligation and £37,424,000 in respect of non-vested obligation.

Asset and benefit obligation reconciliation for the year to 31 March 2024

Reconciliation of opening & closing balances of the present value of the defined benefit obligation	31-Mar-23 £000	31-Mar-24 £000
Opening defined benefit obligation	(5,669,531)	(4,042,513)
Current service cost	(242,639)	(108,881)
Interest cost	(146,099)	(191,204)
Change in financial assumptions	2,392,022	36,157
Change in demographic assumptions	-	46,447
Experience loss/(gain) on defined benefit obligation	(477,886)	(12,789)
Liabilities assumed / (extinguished) on settlements	-	-
Estimated benefits paid net of transfers in	137,997	158,371
Past service costs, including curtailments	(1,158)	(1,203)
Contributions by Scheme participants	(35,219)	(37,710)
Unfunded pension payments	-	-
Closing defined benefit obligation	(4,042,513)	(4,153,325)

 

Reconciliation of opening & closing balances of the fair value of Fund assets	31-Mar-23 £000	31-Mar-24 £000
Opening fair value of Fund assets	4,687,667	4,560,502
Interest on assets	121,965	218,797
Return on assets less interest	(252,372)	145,535
Other actuarial gains/(losses)	-	-
Administration expenses	(3,424)	(3,906)
Contributions by employer including unfunded	109,444	116,161
Contributions by Scheme participants	35,219	37,710
Estimated benefits paid plus unfunded net of transfers in	(137,997)	(158,371)
Settlement prices received / (paid)	-	-
Closing Fair value of Fund assets	4,560,502	4,916,428

The total return on the Fund’s assets for the year to 31 March 2024 is a gain of £364,332,000 (2023 loss of £130,407,000).

 

Sensitivity Analysis

 

	31 March 2024 £000
Present value of total obligation	4,153,325
Sensitivity to	+0.1%	-0.1%
Discount rate	4,086,944	4,221,444
Long term salary increase	4,157,208	4,149,468
Pension increases and deferred revaluation	4,218,800	4,089,496
Sensitivity to	+1 Year	- 1 Year
Life expectancy assumptions	4,316,658	3,996,939

 

The information in the above note is all from the Fund Actuary - Barnett Waddingham.

21. Current Assets

 

	31 March 2023 £000	31 March 2024 £000
Other Investment Balances
Sales inc Currency	-	-
Investment Income Due	674	826
Recoverable Taxes	388	507
Total	1,062	1,333

 

	31 March 2023 £000	31 March 2024 £000
Current Assets
Contributions receivable from employers and employees	11,796	13,068
Sundry Debtors	2,177	2,095
Cash	9,332	5,031
Total	23,305	20,194

 

22. Current liabilities

 

	31 March 2023 £000	31 March 2024 £000
Investment Liabilities
Purchases including currency	(309)	(1460)
Derivative Contracts Futures	-	-
Variation Margin	(53)	(39)
Managers Fees	(699)	(1,183)
Total	(1,061)	(2,682)

 

	31 March 2023 £000	31 March 2024 £000
Current Liabilities
Pension Payments (inc Lump Sums)	(221)	(549)
Cash	-	-
Professional Fees	(2,237)	(15)
Administration Recharge	(72)	(328)
Sundry Creditors	(2,031)	(2,191)
Total	(4,561)	(3,083)

 

23. Additional voluntary contributions

 

	Market value 31 March 2023 £000	Market value 31 March 2024 £000
Prudential	17,232	19,229

 

The Pension Fund Scheme provides an Additional Voluntary Contribution (AVC) facility for scheme members. Some members of the pension scheme paid voluntary contributions and transfers in of £2.854m (£2.504m 2022/23) to Prudential to buy extra pension benefits when they retire. £2,050m was disinvested from the AVC provider in 2023/24 (£3.187m 2022/23). Contributions and benefits to scheme members are made directly between the scheme member and the AVC provider. The AVC funds are not, therefore, included in the Pension Fund Accounts.

 

24.  Agency Services

 

The East Sussex Pension Fund pays discretionary awards to former employees on behalf of some employers in the Fund. The amounts paid are provided as a service and are fully reclaimed from the employer bodies. The sums are disclosed below.

	2022/23 £000	2023/24 £000
East Sussex County Council	4,618	4,891
Brighton & Hove City Council	2,056	2,127
Eastbourne Borough Council	281	286
Magistrates	199	208
Wealden District Council	168	180
Hastings Borough Council	165	172
Rother District Council	99	106
Lewes District Council	66	64
University of Brighton	24	26
South-East Water	22	21
Westminster (used to be LPFA)	20	21
Mid-Sussex District Council	19	18
East Sussex Fire Authority	14	12
London Borough of Camden	8	8
London Borough of Southwark	7	7
The Eastbourne Academy	6	7
West Midlands Pension Fund	5	5
West Sussex County Council	4	5
Torfaen Borough Council	4	4
Sussex University	3	4
Varndean College	2	2
London Borough of Ealing	2	2
East Sussex College Group	1	1
Plumpton College	1	1
Optivo	1	1
Total	7,795	8,179

 

25. Related party transactions

 

East Sussex County Council

 

The East Sussex Pension Fund is administered by East Sussex County Council. Consequently, there is a strong relationship between the Council and the Pension Fund.

Each member of the Pension Committee is required to declare their interests at each meeting. The Treasurer of the Pension Fund, and Members of the County Council and the Pension Committee have no material transactions with the Pension Fund.

The Council incurred costs in administering the Fund and charged £2.5m to the Fund in 2023/24 (£2.0m in 2022/23). The Council’s contribution to the Fund was £49.4m in 2023/24 (£46.6 in 2022/23). All amounts due to the Fund were paid in the year. At 31 March 2024 the Pension Fund bank account held £6.9m in cash (£9.8m at 31 March 2023). The average throughout the year was £9.6m (£8.2m in 2022/23).

Key management personnel

 

The Pension Committee and Chief Finance Officer of East Sussex County Council hold the key positions in the financial management of the East Sussex Pension Fund. Their remuneration is set out below:

	31 March 2023 £000	31 March 2024 £000
Short-term benefits	35	37
Post-employment benefits	5	6
Total	40	43

 

The amount disclosed represents an assumed 22% of the Chief Finance Officer’s remuneration devoted to the Fund

26. Contingent liabilities and contractual commitments

 

1.         Outstanding capital commitments (investments) at 31 March 2024 totalled £202.6m (31 March 2023: £236.8m).

These commitments relate to outstanding call payments due on unquoted limited partnership funds held in the private equity and infrastructure parts of the portfolio. The amounts ‘called’ by these funds are irregular in both size and timing, typically over a period of between four and six years from the date of each original commitment. 

At, 31 March 2024, the unfunded commitment was £131.6m for private equity, £39.6m for infrastructure and £31.4m for private debt. The commitments are paid over the investment timeframe of the underlying partnerships. As these partnerships mature, they are due to distribute capital back to investors.  Commitments are made in US Dollars or Euros and the figures presented here are based on relevant Sterling exchange rates as at 31 March 2024.

2.         Exit Payments

There were 8 scheme employers which ceased by the end of 31 March 2024 where an exit credit may need to be paid out. The Fund needs to obtain final information from the employers and then obtain final cessation reports from the Fund Actuary to ascertain if an exit payment or credit is due relating to these employers. The Fund has obtained 3 of these cessation reports and one indictive report, estimating the maximum potential exit credit based on the indicative cessation date. The Pension Committee will be required to make any decision as to the payment of any exit credit in line with the Fund’s exit credit policy, taking into account representations from the relevant employers and associated risk sharing arrangements. The total potential exit credit that could be paid out by the Fund is expected to range from £0-£2.4m.

 

 

 

3.         GMP Reconciliation Project

The Guaranteed Minimum Pension (GMP) Reconciliation project was split into number stages for Local Government Pension Schemes (LGPS). The Fund has completed the discovery and GMP reconciliation phases, which reviewed data inconsistencies, raised issues with HMRC and agreed outcomes.

GMP elements of LGPS pension where State Pension Age is prior to 6 April 2016 has not increased in respect of the period 6 April 1978 to 5 April 1988. While the Post 1988 GMP element in respect of the period 6 April 1988 to 5 April 1997 might be increased up to a maximum of 3% p.a. The Government increase the State Pension for the member fully on the Pre 1988 GMP element and for Post 1988 GMP element has only increased if CPI is above 3% p.a.

The effect of LGPS pensions not showing the correct amount of GMP for its members would mean that their pension might be increased incorrectly. This can result in underpayments and overpayments, at a member specific level. For pensioners below GMP age and non-pensioners the impact is more of record keeping and a matter of changing their Altair records to show the correct split of benefit between GMP and non-GMP without changing the actual overall benefit accrued to date.

The correction of any discrepancies found in the rectification is known as GMP rectification and these changes began to be implemented in March 2024. There were circa 2k pensioners in scope for rectification but less than 300 impacted by over and underpayments (with a few exceptions held back for further investigation) were written to on 27 March 2024. It was agreed that underpayments would be settled immediately (38 cases) whereas overpayments to date were written-off. In addition, for the overpayment cases (246) they were given three months’ notice of the reduction in pension so these will be effective from their June 2024 payments.  

There remains some ongoing GMP reconciliation and rectification queries and questions with the third-party specialist (Mercer {Aptia}) to resolve which will likely lead to further cases have their records changed and possibly a few pensioners with over or underpayments being implemented later. The vast majority of changes in liabilities were small and will be implemented by 30 June 2024.

27. Contingent assets

 

1.         Employer bonds/guarantees

There are 7 admitted body employers in the Fund that hold insurance bonds to guard against the possibility of them being unable to meet their pension obligations. These bonds are drawn in favour of the pension fund and payment will only be triggered in the event of employer default.

In addition to these bonds, pension’s obligations in respect of 15 other admitted bodies are covered by:

2 guarantees by Academies participating in the Fund.

9 guarantees by local authorities participating in the Fund.

1 guarantee by Parent company sub-contracting to one part of the company, hence being guarantor for itself.

1 Parent company guarantee.

1 deposit held by East Sussex County Council.

1 Subsumption Agreement

28. Impairment losses

During 2023/24, the fund has not recognised any impairment losses.

29. East Sussex Pension Fund – Active Participating Employers

 

	22/23 Payroll %	22/23 Amount £000	23/24 Payroll %	23/24 Amount £000	24/25 Payroll %	24/25 Amount £000
Scheduled Bodies - Major Authorities
Brighton and Hove City Council	19.8	-	19.8	-	19.8	-
East Sussex County Council	17.6	4,966	19.7	-	19.7	-
East Sussex Fire and Rescue Service	17.9	109	18.7	-	18.7	-
Eastbourne Borough Council	18.9	-	17.9	-	17.9	-
Hastings Borough Council	17.6	476	22.1	-	22.1	-
Lewes District Council	23.1	-	22.1	-	22.1	-
Rother District Council	25.1	-	24.1	-	24.1	-
University of Brighton	17.2	-	17.2	-	17.2	-
Wealden District Council	17.6	499	21.0	-	21.0	-
Other Scheduled Bodies
Battle Town Council	21.1	-	20.1	-	20.1	-
Berwick Parish Council	21.1	-	20.1	-	20.1	-
Bexhill on Sea Town Council	18.2	-	20.1	-	20.1	-
Buxted Parish Council	21.1	-	20.1	-	20.1	-
Camber Parish council	21.1	-	20.1	-	20.1	-
Chailey Parish Council	21.1	-	20.1	-	20.1	-
Chiddingly Parish Council	21.1	-	20.1	-	20.1	-
Conservators of Ashdown Forest	21.1	-	20.1	-	20.1	-
Crowborough Town Council	21.1	-	20.1	-	20.1	-
Danehill Parish Council	21.1	-	20.1	-	20.1	-
Ditchling Parish Council	21.1	-	20.1	-	20.1	-
East Dean & Friston Parish Council	18.2	-	20.1	-	20.1	-
Ewhurst Parish Council	-	-	20.1	-	20.1	-
Fletching Parish Council	21.1	-	20.1	-	20.1	-
Firle Parish Council	18.2	-	20.1	-	20.1	-
Forest Row Parish Council	21.1	-	20.1	-	20.1	-
Frant Parish Council	21.1	-	20.1	-	20.1	-
Hadlow Down Parish Council	21.1	-	20.1	-	20.1	-
Hailsham Town Council	21.1	-	20.1	-	20.1	-
Hartfield Parish Council	21.1	-	20.1	-	20.1	-
Heathfield & Waldron Parish Council	21.1	-	20.1	-	20.1	-
Herstmonceux Parish Council	21.1	-	20.1	-	20.1	-
Hurst Green Parish Council	21.1	-	20.1	-	20.1	-
Icklesham Parish Council	21.1	-	20.1	-	20.1	-
Isfield Parish Council	21.1	-	20.1	-	20.1	-
Kingston Parish Council	18.2	-	20.1	-	20.1	-
Lewes Town Council	21.1	-	20.1	-	20.1	-
Maresfield Parish Council	21.1	-	20.1	-	20.1	-
Newhaven Town Council	21.1	-	20.1	-	20.1	-
Newick Parish Council	21.1	-	20.1	-	20.1	-
Peacehaven Town Council	21.1	-	20.1	-	20.1	-
Pett Parish Council	21.1	-	20.1	-	20.1	-
Plumpton Parish Council	21.1	-	20.1	-	20.1	-
Rye Town Council	21.1	-	20.1	-	20.1	-
Salehurst & Robertsbridge Parish Council	21.1	-	20.1	-	20.1	-
Seaford Town Council	21.1	-	20.1	-	20.1	-
Telscombe Town Council	21.1	-	20.1	-	20.1	-
Uckfield Town Council	21.1	-	20.1	-	20.1	-
Wartling Parish Council	21.1	-	20.1	-	20.1	-
Willingdon and Jevington Parish Council	21.1	-	20.1	-	20.1	-
Wivelsfield Parish Council	21.1	-	20.1	-	20.1	-
Academy Schools
Annecy Catholic Primary Academy	14.5	-	13.4	-	14.4	-
Aquinas Trust	20.0	-	19.0	-	18.9	-
ARK Schools Hastings	19.6	-	18.9	-	18.9	-
Aurora Academies Trust	19.4	-	18.9	-	18.9	-
Beacon Academy	22.0	-	21.0	-	20.0	-
Beckmead Ropemakers Academy	16.3	-	17.3	-	18.3	-
Bexhill Academy	21.9	-	20.9	-	19.9	-
Bilingual Primary School	14.6	-	15.6	-	16.6	-
Breakwater Academy	16.0	-	19.8	-	19.8	-
Burfield Academy (Hailsham Primary)	19.0	-	19.8	-	19.8	-
Cavendish Academy	19.5	-	18.9	-	18.9	-
Chantry Community Primary	-	-	18.9	-	18.9	-
Chyngton School	21.0	-	20.4		19.0	-
Diocese of Chichester Academy Trust	23.4	-	22.4	-	21.4	-
Ditchling CE Primary	21.0	-	20.4	-	19.4	-
Eastbourne Academy	20.2	-	19.2	-	18.9	-
Falmer (Brighton Aldridge Community Academy)	19.0	-	18.9	-	18.9	-
Flagship School	22.3	-	21.3	-	20.3	-
Gildredge House Free School	18.6	-	18.9	-	18.9	-
Glyne Gap Academy	20.4	-	19.4	-	18.9	-
Hailsham Academy	19.0	-	18.9	-	18.9	-
Hawkes Farm Academy	15.4	-	19.8	-	19.8	-
High Cliff Academy	19.0	-	19.8	-	19.8	-
Hollington Primary	-	-	18.9	-	18.9	-
Jarvis Brook Academy	13.5	-	14.5	-	15.5	-
King's Church of England Free School	15.2	-	16.2	-	17.2	-
Langney Primary Academy	12.4	-	13.4	-	14.4	-
Little Common School	-	-	18.9	-	18.9	-
Ore Village Academy	17.5	-	18.5	-	18.9	-
Mouslecoombe Primary School	27.2	-	26.2	-	25.2	-
Newick CE School	-	-	18.9	-	18.9	-
Ninfield CE Primary School	-	-	18.9	-	18.9	-
Parkland Infant Academy	13.8	-	14.8	-	15.8	-
Parkland Junior Academy	13.4	-	14.4	-	15.4	-
Peacehaven Academy	12.0	-	13.5	-	14.5	-
Peacehaven Heights	25.7	-	19.8	-	19.8	-
Pebsham Academy	18.5	-	18.9	-	18.9	-
Phoenix Academy	19.4	-	19.8	-	19.8	-
Portslade Aldridge Community Academy	18.9	-	19.9	-	18.9	-
King's Academy Ringmer	19.8	-	18.9	-	18.9	-
Roseland Infants	24.9	-	23.9	-	22.9	-
SABDEN Multi Academy Trust	22.6	-	19.6	-	18.9	-
Saxon Shore Academy	22.7	-	21.7	-	20.7	-
Seaford Academy	20.1	-	19.1	-	18.9	-
Seahaven Academy	20.5	-	19.5	-	18.9	-
Shinewater Primary Academy	13.5	-	14.5	-	15.5	-
Sir Henry Fermor Academy	13.8	-	14.8	-	15.8	-
Stafford Junior	25.7	-	24.7	-	23.7	-
St Andrew's School	-	-	18.9	-	18.9	-
The Haven School	-	-	18.9	-	18.9	-
The South Downs Learning Trust	11.2	-	12.2	-	13.2	-
The Southfield Trust	13.4	-	14.4	-	15.4	-
Telscombe Cliffs	23.8	-	19.8	-	19.8	-
Tollgate School	-	-	18.9	-	18.9	-
Torfield & Saxon Mount Academy Trust	21.6	-	20.6	-	19.6	-
University of Brighton Academies Trust	19.0	-	18.9	-	18.9	-
Uplands Community College	-	-	20.4	-	19.4	-
West Blatchington Primary	-	-	18.9	-	18.9	-
White House Academy	16.5	-	19.8	-	19.8	-
Colleges
Bexhill College	21.2	-	21.2	-	21.2	-
Brighton, Hove & Sussex Sixth Form College	19.8	-	19.8	-	19.8	-
East Sussex College Group	20.7	-	20.7	-	20.7	-
Plumpton College	18.9	-	18.9	-	18.9	-
Varndean Sixth Form College	19.8	-	19.8	-	19.8	-
Admission Bodies
Balfour Beatty	-	-	28.5	-	28.5	-
BHCC - Wealden Leisure Ltd	33.0	-	27.7	-	27.7	-
Biffa Muncipal Ltd	28.8	-	27.8	-	26.8	-
Brighton and Hove CAB	-	-	-	-	-	-
Brighton and Hove Housing Trust	31.4	-	31.4		31.4
Brighton Dome & Festival Limited (Music & Arts Service)	-	-	4.3	-	4.3	-
Care Outlook Ltd	-	-	-	-	-	-
Care Quality Commission	49.2	92	44.8	-	44.8	-
Churchill Contract Services	-	-	30.4	-	30.4	-
Compass (The Causeway)	34.0	-	32.0	-	31.0	-
Cucina Restaurants Ltd	-	-	24.3	-	24.3	-
De La Warr Pavilion Charitable Trust	4.8	-	2.9	-	2.9	-
East Sussex Energy, Infrastructure & Development Ltd (ESEIDL)	29.2	13	28.2	-	28.2	-
EBC – Towner	31.0	7	22.1	-	22.1	-
ESCC - NSL Ltd	3.6	-	-	-	-	-
Glendale Grounds Management Ltd	29.4	-	28.4	-	28.4	-
Grace Eyre	-	-	-	-	-	-
Idverde	-	-	33.1	-	33.5	-
Just Ask Estates Ltd	32.6	-	-	-	-	-
Lodestar Cleaning Contracts Ltd	-	-	25.1	-	25.1	-
Southern Housing	45.8	920	45.9	111	45.9	111
Royal Pavilion & Museums Trust	17.8	-	17.8	-	17.8	-
Sussex County Sports Partnership	17.2	-	17.2	-	17.2	-
Sussex Housing & Care	-	-	-	-	-	-
Sussex IFCA Insure Fisheries and Conversation Authority	18.2	-	20.1	-	20.1	-
Telent Technology Services Ltd	20.8	-	20.8	-	20.8	-
Wave Leisure Trust Ltd	-	-	7.1	-	7.1	-
Wave Leisure Trust Ltd - EBC	22.4	-	7.1	-	7.1	-
WDC - Wealden Leisure Ltd	33.0	-	26.1	-	26.1	-
Wealden Leisure Ltd - Portslade Sports Centre	-	-	-	-	-	-

 

30. Investment Performance -only been given preliminary information may change

 

The Fund uses an independent Investment performance measurement service, provided by Pensions & Investment Research Consultants Ltd (PIRC), which measures the performance of the Fund compared with 47 other local authority pension funds. Pension Fund investment is long-term, so as well as showing the annual performance of the Fund, comparison to peers over longer periods is also detailed below.

Performance relative to the Fund’s strategic benchmark

	1 year (%)	3 years (%p.a.)	5 years (%p.a.)	10 years (%p.a.)
Fund	8.0	5.2	6.3	7.7
Benchmark	12.3	7.0	6.8	7.3
Relative*	(4.4)	(1.8)	(0.5)	0.4

 

Investment performance relative to peer group

	1 year (%)	3 years (%p.a.)	5 years (%p.a.)	10 years (%p.a.)
Fund	8.0	5.2	6.3	7.7
Local Authority Average	9.4	5.4	6.5	7.6
Relative*	(1.3)	(0.2)	(0.2)	0.1

The Fund underperformed the (weighted) average local authority Fund over the year by 1.2% (1.0% outperformance 2022/23), ranking the East Sussex Fund in the 72^nd percentiles (39th 2022/23) in the local authority universe. Over the three years the Fund underperformed by 0.1 % (0.0% outperformance 2022/23) and was placed in the 44^th percentile (43^rd percentile in 2022/23). Over five years the Fund underperformed by 0.2% (0.2% outperformance in 2022/23) and was placed in the 61^st percentile (27^th percentile 2022/23). Over ten years the fund years, the fund outperformed by 0.1% (0.2% outperformance 2022/23) and was placed in the 36th percentiles (21^st percentile 2022/23).

*Relative performance is calculated on a geometric basis as follows:

( ( 1 + Fund Performance ) / ( 1 + Benchmark Performance ) ) - 1

As opposed to the simpler arithmetic method, the geometric method makes it possible to directly compare long-term relative performance with shorter-term relative performance.

Investments and Funding

Investment Strategy Statement Implementation

Activity in 2023/24

The Fund’s strategic asset allocation was revised following decisions taken at the September 2023 Committee meeting. The changes that were agreed have been reflected in the strategic benchmark and implemented over the 2023/2024 financial year.

The agreed strategic changes involved a reduction in target allocation for inflation-linked property (from 4.0% to 0%) and a reallocation of the proceeds to index-linked gilts (target increasing from 0% to 4.0%). The inflation property allocation was yet to be implemented and the index-linked gilt allocation was already at the target level, increased through tactical allocation throughout the year, when the new allocations were agreed. It was agreed to maintain the overall allocation to equity unchanged at 40% but to restructure the underlying holding. The target allocation to the passively managed sustainable funds would be equally split, to provide a better balance between the approaches taken. The target allocation to Storebrand would be reduced (from 10% to 7.5%), whilst the target allocation to Osmosis would be increased (from 5.0% to 7.5%).

The Committee demonstrate their consideration of Environmental, Social, and Governance (ESG) and climate related issues through the abovementioned changes. Similarly, the Fund’s fossil fuel exposure is estimated on a quarterly basis, with this estimated as 2.4% of total Fund assets as at 31 March 2024.

Asset Allocation

 

The Fund’s asset allocation maintains a significant allocation to equities, which are expected to be a core driver of returns over the long term, but typically the most volatile. However, the equity portfolio is diversified across regions and styles to target a balanced exposure. The Fund’s infrastructure allocation provides additional diversification to the overall portfolio, as well as contractual type returns, which are expected to provide a more certain and stable return profile going forwards. The Fund maintains a significant allocation to property, providing further diversification from traditional investment markets such as equities and bonds.

Credit mandates such as corporate bonds, index-linked gilts and absolute return credit also provide diversification, due to differing return drivers than equities, while also offering source of liquidity. The absolute return mandates combine a number of asset classes in order to provide a smoother path of returns, offering the manager flexibility to alter allocations to benefit from varying market conditions.

 

 

Independent adviser’s report

East Sussex Pension Fund – Independent Advisor’s Report 2024

The Fund receives formal advice on investment matters from its actuarial and investment consultants.  My role as an Independent Advisor is to act as a separate source of advice and expertise to Officers and Committee members.  Our collective objective is to invest the Fund’s assets to pay members’ pensions in full and on time.  In writing this report, I can also provide stakeholders with some independent assurance that the Fund is being appropriately and properly managed.

I will start my report with investments.  My report last year noted the rise in inflation and interest rates and the resulting steep rise in bond yields.  Since then inflation in western economies has fallen back to much closer to the 2% level targeted by many central banks.  While they have kept interest rates higher, they have adopted a relatively liberal monetary policy.  The consequence has been that the recession which was widely forecast for 2023 has been largely avoided.

Against this background,  equity indices have risen, though the narrow leadership by a small number of tech companies meant that most active managers found it difficult to outperform them.  The bond yield curve, inverted since the LDI crisis in 2022, has levelled out considerably.  However, infrastructure and climate change transition companies, where the Fund has significant allocations, have struggled as investors and managers alike adjusted their valuations to the new bond yield environment.  Investors’ expectations of the growth of renewable energy companies were perhaps too high and have also been reined back.

2024 has already been a year of elections, with the U.S. still to come.  An important theme in the West is levels of debt much higher than those historically considered acceptable.  This has resulted from higher spending over the COVID lockdowns and the increasing demands of health, social care, and defence.  As a result politicians of whatever colour have little room for fiscal manoeuvre without the cost of debt service impacting their budgets.  For example, the U.S. government in 2023 ran a primary fiscal deficit of about 7% a year and about 16% of all its expenditure went on servicing debt. 

China has different problems:  low growth, partly because of the reverse in globalisation, which I mentioned last year and partly because of the travails of its real estate sector, has led to deflation.  The authorities have reacted by reducing interest rates but are finding it difficult to generate growth again.

The Fund’s funding level remains high, and quite possibly higher today than the 123% assessed in March 2022.  I remind readers that it stood at 81% when my role as Independent Advisor commenced in 2014.   However, it would be unwise to be complacent: a resurgence in inflation at some point is almost inevitable, which will increase the Fund’s liabilities. A healthy surplus provides some protection against the need to raise contributions further.

The Fund is also gradually turning cash negative as the number of active members declines and pension payments exceed contributions.  Officers are therefore modelling future cashflow over the short and longer term to ensure that there is sufficient income from our investments to meet any shortfall and ensure pensions are indeed paid on time.

During the year the Government published a consultation into the future investment strategy of all LGPS funds.  While no regulations have since been published, it has since set a number of targets and ambitions around pooling, intended to reduce costs and increase general economic growth.  While these goals may be laudable, the Fund’s only purpose is to pay its members’ pensions on time;  part of my role is to ensure that political or other agendas are not allowed to distract it from this objective.

The ACCESS pool which was set up by eleven LGPS funds to implement investments jointly, has made some progress during the year.  However, the Government will be looking for an acceleration in the rate of asset transition to pools in the future, and possibly consolidation in the number of funds and pools.  This poses a risk of disruption for all LGPS funds including this one.

Administration is as important a function as investment management is in ensuring that pensions are paid in full and on time.   As I commented last year, the pressures on the Fund’s team continue to increase:  government projects such as the Pensions Dashboard and the rectification of past unfairnesses (McCloud, GMP) and employers who fail to keep good data records are just two examples.  The rise in buy-outs of private sector schemes has also led to a national shortage of experienced pension administrators.

My final duty in this report is to provide some assurance as to the overall arrangements for the Fund.  As last year, from a financial perspective the funding level is healthy.  I can assure readers that the Fund’s internal governance processes and structures are of a good standard and that it is sufficiently resourced both on the investment and the administration side.  Although investment returns may decrease, it is important to remember that the Fund has a long horizon, and market fluctuations are inevitable.  In common with many LGPS funds, the highest risks today probably lie in the potential for disruption from Government interference and the burdens placed on the administration function.

William Bourne

Independent Advisor

10^th July 2024

 

Funding strategy statement implementation

 

The Funding Strategy Statement (FSS) focuses on how employer liabilities are measured, the pace at which these liabilities are funded, and how employers or pools of employers pay for their own liabilities. The FSS is prepared in accordance with Regulation 58 of the Local Government Pension Scheme Regulations 2013, CIPFA guidance and in collaboration with the Fund’s actuary in place at the time of the last triennial valuation Barnett Waddingham, after consultation with the Fund’s employers and investment adviser.

The FSS sets out how the Administering Authority has balanced the conflicting aims of:

·         affordability of employer contributions,

·         transparency of processes,

·         stability of employers’ contributions, and

·         prudence in the funding basis.

The FSS is a summary of the Fund’s approach to funding its liabilities, and this includes reference to the Fund’s other policies; it is not an exhaustive statement of policy on all issues. The FSS forms part of a framework of which includes:

·         the LGPS Regulations;

·         the Rates and Adjustments Certificate (confirming employer contribution rates for the next three years);

·         actuarial factors for valuing individual transfers, early retirement costs and costs of buying added service; and

·         the Fund’s Investment Strategy Statement

The Funding Strategy Statement was updated to reflect funding principles agreed for the 2022 actuarial valuation and was approved in March 2023. The funding principles apply to employer contributions payable from 1 April 2023 to 31 March 2024.

The approach used to set asset allocations for new bodies, to calculate the bond requirements for admitted bodies and to determine any cessation debts payable by exiting employers are calculated in line with the Funding Strategy Statement. The Fund monitors the change in the funding position at a whole Fund level on a regular basis. The next review of the Funding Strategy Statement will take place over the 2025/26 year as part of the 2025 valuation exercise.

The latest version of the Funding Strategy Statement is available on the Fund’s website: https://www.eastsussexpensionfund.org/forms-and-publications/

Investment administration and custodianship

 

The Fund uses the services of a specialist custodian bank (Northern Trust) to safeguard its assets to prevent them from being stolen or lost. The custodian can hold stocks, bonds, or other assets in electronic or physical form on behalf of the Fund.

 

The custodian bank however does more than provide asset protection. They are also an asset servicing business ensuing that the investment administration of the Fund is in order. The services encompass a much broader range of data, operations, Banking & Markets, and decision-support functions. The spectrum of asset servicing products they offer ranges from fundamental core custody and accounting services to more advanced data and fund servicing offerings, as outlined at a high-level below.

 

The responsibilities of the Custodian are:

Core Custody Services

• Sub-custody
• Safekeeping
• Trade Settlement
• Income Collection
• Corporate Actions
• Tax Reclaims, including document completion for clients (including the UK)
• Proxy Voting
• Class Action Recoveries

Value Added and Reporting Services

• Investment Accounting (asset valuation)
• Performance Measurement
• Quarterly Office of National Statistics (ONS) Reporting
• Client Services
• On-line client portal system administration and user maintenance and training
• Provision of Service Level Agreement (SLA) and Key Performance Indicators (KPI)
• Markets Services
• Cash Management
• Foreign Exchange services
• Transition (Onboarding and Exit Management)

OPTIONAL SERVICES INCLUDING BUT NOT LIMITED TO:

Added Value Services

• Annual Financial Accounting (Chartered Industry of Public Finance and Accounting (CIPFA) Compliant)
• Over-the-Counter (OTC) pricing and settlement – Swap booking, valuation, lifecycle event management
• Collateral management service and European Market Infrastructure Regulation (EMIR) reporting
• Unitisation
• Master Record Keeping (Consolidated reporting for different legal entities)
• Cash account netting for same currency and entity
• Provision of bespoke Service Level Agreement (SLA) and Key Performance Indicators (KPI)

Alternative Asset Servicing

• Alternative Funds, for example:
• • Pooled Funds
  • Real Estate Funds
  • Private Equity Funds
  • Infrastructure Funds
  • Hedge Funds
• Direct Holdings, for example:
• • Direct Private Debt
  • Loan Servicing
  • Direct Private Equity (limited partnership (LP))
  • Private Equity Administration / Capital Call services

Reporting and Analytics

• Environmental, Social and Governance (ESG) Services and Reporting – Pre and Post-trade reporting
• Risk Analytics
• Compliance Monitoring
• Look through to pooled fund holdings

 

Investment Managers

 

The Fund employs a number of investment managers across the various mandates, with differing approaches or styles, as well as sectoral and geographic focus, and benchmarks. This is in order to ensure sufficient diversification, limiting downside risk during periods of market volatility. The Fund’s investment manager structure is broadly as follows:

 

·         The Fund’s equity mandate is split across a number of managers, having previously been largely allocated to UBS. The equity allocation is now weighted in favour of active management strategies, reflecting the Committee’s preference for active management and an ESG focus, with the equity holdings broadly split 62.5/37.5 in terms of active and passive. The active sleeve is split across global equity mandates with Longview and Baillie Gifford, as well as impact equity strategies managed by Wellington and WHEB. The passive, or systematic, sleeve is split between two ESG systematic/smart beta strategies, one with Storebrand, and the other with Osmosis (implemented by UBS).

·         Absolute return mandates are held with Newton and Ruffer and allow managers to flexibly alter allocations to a variety of underlying asset classes based on specific market conditions.

·         The Fund’s property mandate is held with Schroders, with a ‘fund of funds’ approach adopted, adding an additional layer of diversification to the mandate. The property holding will transfer to a CBRE managed fund on the Access Pool in the near future.

·         Corporate bonds, absolute return credit and commercial real estate debt mandates are managed by M&G, while the Fund’s passive index-linked gilts mandate is held with UBS. As noted above, during 2022, the Fund agreed the decision at add an additional credit mandate managed by BlueBay with the expectation this will be implemented on the ACCESS pool in the coming months.

·         The Fund’s infrastructure holdings are split between M&G, UBS, Pantheon (all unlisted) ATLAS (listed) and most IFM (unlisted), who adopt varying styles and focus areas.

·         Private equity mandates are split between Adams Street and HarbourVest.

The Fund has the following objectives for its investment managers:

·         Each (active) manager delivers on its objective, net of fees.

·         Each mandate adds a layer of diversification and offers different qualities to the Fund, through varying approaches and focus areas (geographic and sectoral).

·         Consider all financial and non-financial risks and considerations including Environmental, Social and Governance (ESG) factors (including but not limited to climate change).

Ultimately the Fund seeks to deliver an appropriate level of return, relative to the risk taken.

 

Investment Allocations pooled and un-pooled

Mandate	Q1 2023 (£m)	Actual (%)	Target (%)	Q1 2024 (£m)	Actual (%)	Target (%)
Pooled Investments
ACS Funds
ACCESS - Global Equity (Longview)	555.7	12.2%	10.0%	521.6	10.6%	10.0%
ACCESS - Global Alpha (Ballie Gifford)	187.3	4.1%	5.0%	217.3	4.4%	5.0%
ACCESS - Absolute Return (Ruffer)	478.9	10.5%	10.0%	450.4	9.2%	10.0%
ACCESS - Real Return (Newton)	340.9	7.5%	7.0%	368.2	7.5%	7.0%
ACCESS - Sterling Corporate Bond (M&G)	123.6	2.7%	3.5%	131.1	2.7%	3.5%
ACCESS - Alpha Opportunities (M&G)	293.2	6.4%	7.0%	330.5	6.7%	7.0%
Total Link ACS Funds	1,979.6	43.4%	42.5%	2,019.1	41.1%	42.5%
Pool Aligned
ACCESS - UBS - 5yr ILG	93.7	2.1%	-	234.9	4.8%	4.0%
ACCESS - UBS - Osmosis	236.8	5.2%	5.0%	397.6	8.1%	7.5%
ACCESS - IFM - Infrastructure	-	-	-	246.9	5.0%	5.0%
Total Pool Aligned	330.5	7.3%	5.0%	879.4	17.9%	16.5%
Total Pooled Investments	2,310.1	50.7%	47.5%	2,898.5	59.0%	59.0%
Non-Pooled Investments
Equities (passive):
Storebrand - Global ESG Plus	501.2	10.9%	10.0%	465.3	9.5%	7.5%
Equities (active):
Wellington - Global Impact	221.8	4.9%	5.0%	247.3	5.0%	5.0%
WHEB- Sustainability	221.8	4.9%	5.0%	238.0	4.8%	5.0%
Total Equities	944.8	20.7%	20.0%	950.6	19.3%	17.5%
Other Investments:
Schroder - Property	345.7	7.6%	11.0%	336.0	6.8%	7.0%
IFM - Infrastructure	234.1	5.1%	5.0%	-	-	-
M&G - Infrastructure	53.0	1.2%	1.0%	49.4	1.0%	1.0%
Pantheon - Infrastructure	81.2	1.8%	2.0%	87.0	1.8%	2.0%
UBS - Infrastructure	36.3	0.8%	1.0%	35.4	0.7%	1.0%
Atlas - Infrastructure	100.9	2.2%	2.0%	99.9	2.0%	2.0%
Adams Street - Private Equity	195.7	4.3%	2.8%	189.5	3.9%	2.8%
HarbourVest - Private Equity	179.5	3.9%	2.7%	181.6	3.7%	2.7%
M&G Real Estate Debt VI	43.0	0.9%	5.0%	35.1	0.7%	5.0%
Cash account	35.5	0.8%	-	52.2	1.1%	-
Total Other Investments	1,304.9	28.6%	32.5%	1,066.1	21.7%	23.5%
Total Non-Pooled Investments	2,249.7	49.3%	52.5%	2,016.7	41.0%	41.0%
Total	4,559.8	100.0%	100.0%	4,915.2	100.0%	100.0%

 

Management expenses

In the course of its activities the Pension Fund incurs fees and costs incurred by third parties which affect overall investment returns of the Fund. The main component of these costs is management fees derived from the value of assets under management. There are also performance fees (paid when investments perform above a threshold) and transaction fees (these are the costs incurred when buy and selling investments) that impact on the investment returns.

With all investments there are decisions to be made around the risk appetite of the investor. Different assets have different risks associated with them and this drives the amount of return that the Fund expects of the investment. The amount of return that the investment makes drives the amount that a manager can charge for there services. A passive equity manager of a £500m portfolio that is only looking to replicate the index return will charge a low fee say £0.3m where as an active manager trying to out-perform the index by 4%, will charge a higher fee say £3m. The active manager is looking to add an addition £20m in value of the assets for a cost of £2.7m for the investor this would be a positive gain of £17.3m.

To understand the different types of fees charged by managers the Fund requests that all its managers sign up the Scheme Advisory Board’s Code of Transparency. The Fund uses the data provided by fund managers via the Code templates to determine the fees that have been charged for the year and adjusts the accounts accordingly.

	Assets Under Management	1 year performance	Fees and Costs	Fee Per AUM
	£m		£m
Fixed Income	731.6	4.9%	2.0	0.27%
Equity	2,087.1	17.2%	7.6	0.36%
Diversified growth funds	818.6	0.3%	4.8	0.59%
Pooled property investments	336.0	0.5%	1.6	0.48%
Private Equity/Infrastructure	889.7	0.9%	6.2	0.70%
			22.2
Custody			0.1
Total			22.3

Asset Tables

£m Asset values as at 31 March 2024	Pooled	Under pool management	Not Pooled	Total
Equities (including convertible shares)	738.9	397.6	950.6	2,087.1
Bonds	461.6	234.9	-	696.5
Property	-	-	336.0	336.0
Hedge funds	-	-	-	-
Diversified Growth Funds (including multi-asset funds)	818.6	-	-	818.6
Private equity	-	-	371.1	371.1
Private debt	-	-	35.1	35.1
Infrastructure	-	246.9	271.7	518.6
Derivatives	-	-	-	-
Cash and net current assets	-	-	52.2	52.2
Other	-	-	-	-
Total	2,019.1	879.4	2,016.7	4,915.2

 

UK Investment

£m Asset values as at 31 March 2024	Pooled	Under pool management	Not Pooled	Total
UK Listed Equities	147.5	14.8	58.0	220.3
UK Government Bonds	168.4	234.9	-	403.3
UK Infrastructure	-	44.3	120.7	165.0
UK Private Equity	-	-	32.3	32.3
Total	315.9	294.0	211.0	820.9

Leveling up

£m Asset values as at 31 March 2024	Pooled	Under pool management	Not Pooled	Total
UK Leveling up	-	27.9	43.1	71.0