Questions and answers

Question 1

When there were surpluses in the fund in the past, employers’ contributions were reduced, but not employees’ contributions. In the event of a shortfall in income from investments following the stock-market fall, will employers make good any deficit?

Answer

Under the LGPS Regulations, any shortfall or deficit in the Fund’s assets against liabilities has to be made good by the Employers. Employees’ contributions are fixed at 6% under the Regulations. The Fund’s actuary sets employers’ contribution rates every three years when he undertakes the three-yearly valuation of the Fund. If, at the valuation, a deficit has arisen between the Fund’s assets and liabilities, the actuary increases Employers’ contribution rates. If there is a surplus, the Employers’ contribution rates are reduced.

Question 2

The % pension increase. Why is an amount deducted from the Pension % applied and the deduction added back in?

Answer

The GMP is deducted because the DSS pay the increase on this part of your pension in with your state retirement pension.

Question 3

Will the chairman please ask members who have been part-time who are dissatisfied with the non-contributions by employers to their pensions, to put their hands up and be counted. And to make any comments they wish?

Answer

(No members identified themselves.) Part timers working 15 hours per week or more were allowed to join the Scheme from 1 April 1986. Other part timers could join from 1 January 1993, and casuals from 2 May 1995. For part-time members, employers do pay pension contributions. Regulations in the past have allowed part-time members to ‘buy back’ previous service when they had been excluded from Scheme membership. The Part-Time Buy-Back regulations allowed employers to bear part or all of the costs of buying back previous service but they declined. If this is your concern then it should be taken up with your employer. WYPF merely administers the fund on behalf of employers in accordance with the Regulations. The recent ECJ ruling and House of Lords decision regarding retrospective membership may lead to further opportunities to ‘buy back’ previous part-time service. This will be dependant on the outcome of 2 public-sector test cases which are due to be heard by the Nottingham Employment Tribunal shortly. The regulations then have to be changed by the DTLR. The likelihood is that employee contributions would be payable in such circumstances. It is not clear whether an employer contribution would be required, but in any case the employers meet the balance of the cost of providing pension scheme benefits for all members. It would be appropriate to take up any specific concerns regarding employer contributions with your employer.

Question 4

Is it possible for WYPF to arrange special discounts, over and above normal pensioner discounts, at both entertainment centres i.e. cinemas and theatres, and Local Authority Sports/Leisure Centres and good quality restaurants in our area?

Answer

We are looking to organise more benefits for WYPF members and pensioners and that the launch of the SeniorCare is the first step towards this. If companies, restaurants, and so on, do want to offer discounts, we could publicise them and would suggest these companies contact our Communications Manager about this.

Question 5

Could the pension payslips be paid quarterly to save expense?

Answer

We are currently considering various options regarding the issue of pay advices. These include the issue only when the net pay goes up or down by 25 pence or more. This, in practice, would mean that most pensioners would receive a pay advice in April (when the increase is), May (for the full amount of increase) and in June and July if there are Budget changes that effect tax. Pensioners will still receive the For Your Benefit newsletter twice a year.

Question 6

Will the fund managers plan to stop investing in the tobacco industry as soon as possible?

Answer

All investment decisions are taken by the Investment panel and in-house managers based on financial and commercial criteria so as to produce the best financial returns for the benefit of the beneficiaries of the Fund. Linked to this is a requirement for the Fund to have a properly diversified portfolio of investments. In the financial year ended 31 March 2001, the tobacco sector was one of the strongest-performing sectors, and for WYPF to have not been invested in the tobacco sector would have had a negative impact on the Fund’s investment performance. In recent years, WYPF has reduced its investments in tobacco companies, and it has an underweight position in these companies relative to the FT All Share Index. The Panel and in-house managers will continue to actively review its holdings in tobacco companies, and will take advantage of opportunities to take profits from further sales of existing holdings as deemed appropriate.

Question 7

When I die, will my pension be transferred to someone of my choice? What is the current position around benefits following death to long-standing partners and joint dependants? My partner and I belong to different LA pension schemes. At present it seems that decisions about marriage depend in part of course on which of us is likely to die first.

Answer

At the present time pensions are only payable to legal spouses ( i.e. married) and to eligible children of the deceased (under age 17, over 17 in full time education or incapacitated children). West Yorkshire Pension Fund has campaigned for many years for partners’ pensions to be provided within the Local Government Pension Scheme. The Local Government Pensions Committee (LGPC) of the Employers Organisation has produced costed proposals for the introduction of partners’ and adult dependants’ pensions into the LGPS. In 2001, the LGPC surveyed all Scheme employers to assess the level of support for the introduction of these improvements to the scheme, and 94% of responding employers were in favour of the proposal. The DTLR is currently considering the implications of the proposals, particularly in terms of cost and in terms of ensuring parity between public sector schemes

Question 8

I wish to know what will happen if the share value of WYPF keeps on dropping in the market. Would our regular pension be stopped or decreased, or what alternative system will be in operation?

Answer

WYPF runs the Local Government Pension Scheme. It is a statutory scheme, which operates under LGPS regulations that have the force of law. Pensions are guaranteed and any drop in the markets will not affect pensions either payable now or in the future. The fund is valued every 3 years. Any shortfall in the value of the fund is made up by adjusting the employers’ contribution rates.

Question 9

When is a pensioner representative to be offered a seat on the managing body?

Answer

Bradford Council as administering authority for WYPF sets the composition of the Investment Panel. Of the 15 people on the Panel, 10 are elected members (2 Councillors from each of the 5 District Councils), and there are also 2 Trades Union representatives included on the Panel. Two officers and the Fund’s investment adviser make up the 15. All have equal status and voting rights. The elected members and trades union representatives are deemed to represent all the scheme membership (including pensioners) on the Panel. There would be severe practical difficulties in selecting a specific representative from the 160,000 scheme members, pensioners and deferred pensioners in WYPF.

Question 10

My husband of 30 years died in 1981 and I received a W.Y. pension. This was withdrawn in 1986 when I remarried. The W.Y.P. Scheme was amended in Spring 1998 to include ‘spouses pensions being paid for life’, thus allowing the recipient to i.e. marry or co-habit without financial penalty. Will the W.Y. P. Scheme managers please consider taking a further step and include myself and appropriate others by awarding a re-instatement of these pensions not retrospectively, but from the present time? Thank you.

Answer

WYPF is constantly campaigning for improvements to benefits available from the local government pension scheme. WYPF felt that the issue of widows pensions payable for life was one of these important improvements and submitted comments in support of this change at every opportunity presented. When the regulation was finally made to introduce this change, the change was only applicable from the date of issue of that regulation. It was not made retrospective to reinstate the pension from the current time, of people who had previously been subject to a cessation of their pension. Unfortunately we have no power to overrule the regulation and reinstate these pensions.

Question 11

If the stock market continues to fall and remains at low levels for some time what effect will it have on our pensions, and if a worst case scenario occurs i.e. Wall Street 1929, what safeguards are in place to protect them? And due to the current crisis in the Financial Markets, investment bargains are available especially in the FTSE 100. Are there plans for taking advantage of this situation on a long term basis, assuming spare capital is available?

Answer

Under the LGPS Regulations, pensions are guaranteed by law. Therefore, irrespective of what happens with stock markets, there will be no effect on pensions payable. As things stand at the moment, any shortfall in the assets of WYPF will have to be met by the employers through their contributions into the Fund. On the second part of your question, the investment portfolio is kept constantly under review, and the WYPF has a strong cash position. If investment bargains do appear at any time, then advantage will be taken of those opportunities if the purchase of those shares fits in with the investment strategy of the Fund.

Question 12

Does a part-time pension contribution constitute a full year when calculating ’eightieths’? Whether the answer is yes or no what are the procedures for buying back years or parts of years and in respect of value how does this compare with AVCs?

Answer

For part time employees, contributions are based on actual pay, but Scheme benefits are based on notional full time equivalent pay, so the ’period of membership’ used to calculate benefits is reduced pro rata to the part time hours. The benefit structure is still 1/80 pension and 3/80 lump sum. The Regulations, which govern the operation of the Local Government Pension Scheme, do not currently contain any provisions for ’buying back’ part time years – although these provisions may be introduced following the outcome of public-sector test cases due to be heard by the Employment Tribunal shortly. We will make sure that anyone affected is made aware of any developments in this area. Scheme members who wish to improve their retirement benefits may be able to pay Additional Voluntary Contributions (AVCs) or purchase extra years in the Scheme. These are different methods of increasing your benefits. AVCs are invested by the AVC provider, and the outcome is dependent on investment returns. An AVC Fund Value can be used to buy an annuity or may be converted into extra Scheme pension on retirement. Purchasing extra years involves paying extra contributions direct to the Scheme to buy a certain amount of Scheme service which is then used in the calculation of your benefits. Both options are subject to Inland Revenue contribution and benefit limits. WYPF will provide individual information on both options to members on request. What is ’best’ for you will depend on your own circumstances. In addition, there are other tax-efficient investment vehicles available, such as Stakeholder Pensions and ISAs, who may suit some people better. For this reason, we recommend that members seek independent financial advice if they are unsure of which option is most suitable for their needs.

Question 13

I am a deferred member solely because during Compulsory Competitive Tendering in July 1994 our contract was lost. Along with others I transferred to a Private Contractor and still do the same job for the same Local Authority. Can you help to change legislation to allow me and others to rejoin WYPF and/or to receive early retirement under the 85 year rule? At present I feel discriminated against when compared to other Local Authority workers.

Answer

The Local Government Pension Scheme is a statutory scheme. It operates under regulations, which have the force of law, issued by the Department for Transport, Local Government and the Regions. In 1994 there was no provision in the regulations for private contractors to use the LGPS. In January 2000 the regulations were changed to allow Best Value contractors to participate in the scheme if they wished. But contractors can choose whether or not they want to provide the LGPS. Also, these regulations were not retrospective. You also asked about early payment of pension under the 85-year rule. The 85-year rule was introduced in April 1998 and again does not apply to people who left before that date.

Question 14

What is the fund’s policy on Socially Responsible Investment? And what proportion of the fund is invested in ‘ethical funds’?

Answer

The Fund’s policy on Socially Responsible Investment is set out in the Statement of Investment Principles, and basically all investment decisions are taken on financial and commercial considerations so as to yield the best return by way of income and capital appreciation. If it is shown that particular types of social, environmental and ethical investment can produce at least comparable returns, then the Fund will invest in such companies as part of the normal investment process. The Fund does have a voting policy, which is viewed as a fundamental contribution towards socially responsible investment. The Fund is committed to ensuring that the companies in which it has a shareholding adopt sound principles of corporate responsibility, particularly in relation to environmental and employment standards. The Fund will utilise the shareholding wherever possible, through the voting policy, to exert influence on those companies falling short of acceptable standards. No part of the Fund’s investment portfolio is invested in ‘ethical’ funds.

Question 15

What active measures are being taken to lobby for return of reduced value from Equitable Life AVCs?

Answer

On 21 July 2000, Equitable Life lost an appeal at the House of Lords regarding the Society’s treatment of policyholders with Guaranteed Annuity Rate (GAR) policies. As a result, Equitable Life removed bonuses from With-Profits policyholders’ funds for the period 1 January 2000 to 31 July 2000, and put itself up for sale with the express intention of restoring lost bonuses from the proceeds of the sale. At that point, Equitable Life was WYPF’s sole AVC provider. Equitable Life had been regularly reviewed by WYPF’s professional advisors as AVC provider. Approximately 3100 members were paying into Equitable Life With Profits at that point. Despite early interest from many institutions, Equitable Life was unable to find a buyer. WYPF had already discussed with its professional advisors the appointment of an additional AVC provider. Following the announcement, this process gained momentum. On 22 February 2001 a selection panel interviewed four potential AVC providers which had been shortlisted by the Fund’s actuary. Scottish Widows was selected to run alongside Equitable Life. The appointment of a second AVC provider was significant, in that it gave AVC payers an alternative within the tax year 2000/2001. In February 2001, Equitable Life announced an asset sale to Halifax plc. Halifax agreed to pay £500 million ‘up front’, essentially to buy the salesforce, IT and non-profit business so that it can be merged with Clerical Medical. In terms of the impact on the With-Profits Fund, Halifax will pay a further £250 million if Equitable Life reaches a Compromise Deal with GAR policyholders before 31 March 2002, and a further £250 million in 2003/2004 if the salesforce reaches business targets. The Equitable Life With Profits Fund remains independent and mutually owned. On 18 September 2001 Equitable Life released draft Compromise Proposal documents for consultation. The draft Proposal is to allocate an uplift averaging 17.5% to GAR policy holders in exchange for cancelling the guarantees attached to those policies and an uplift of 2.5% to non-GAR policy holders to allow a measure of compensation in exchange for forfeiting rights to any claims of miss-selling. In October 2001 the Fund’s actuary, following extensive negotiations on WYPF’s behalf, informed WYPF that the bulk surrender penalty that would apply to WYPF AVC payers who wish to surrender their funds to Scottish Widows is 10%. A communications exercise to inform members of this to enable WYPF to collate requests to surrender will be undertaken in November/December 2001. Throughout the process, WYPF has sought to keep members informed of developments, by sending individual letters to home addresses, by updating information on the website (www.wypf.org.uk) and by including information in newsletters. The letters have been written on the basis of advice supplied by the Fund’s actuary, and have often been based on draft letters supplied by the actuary and tailored to our needs. In addition, the Fund has sought legal advice internally and externally about the level and type of information that can be included in member communications, and about the Fund’s powers to facilitate independent financial advice to AVC payers, to provide generic advice and to unilaterally surrender funds should this be advised.

Question 16

In the pension providers performance table what actual No. position does WYPF stand out of how many?

Answer

WYPF measures its investment performance against two peer groups – the local authority pensions funds, and the largest 50 UK pension funds (public and private sector) of which WYPF is one. Against local authority pension funds, in the year to 31 March 2001, WYPF was positioned 31st out 92 and over the ten year period to 31 March 2001, WYPF was positioned 21st. Against the largest 50 UK pension funds, for calendar year 2000, WYPF was positioned 22nd out of 50 and over the ten year period to 31 December 2000, WYPF was positioned 12th.

Question 17

Why is only 50 minutes being allocated to questions. Will all submitted unanswered questions be answered in writing or in leaflet form?

Answer

In structuring the content of the programme for the 2001 Annual Meeting, the time allotted for answers to questions notified in advance of the meeting was considered sufficient. A review of the programme and time allotted to questions at the Annual Meeting in 2002 will be made in the light of experience from the 2001 Annual Meeting. Answers to all questions will be made available in leaflet form to all members of WYPF.

Question 18

Could I have a comment on the recent announcement by the Boots Company pension fund that it has sold its entire equity portfolio of investments to reinvest in bonds.

Answer

There are several factors that could influence a company pension scheme to move in such a direction: a pension fund membership profile heavily weighted towards current and deferred pensioners rather than active members, the relationship between the size of the pension fund and the market capitalisation of the company, and the impact of new accounting rules such as FRS 17. All these considerations do not apply either to the same extent, or at all, to local authority pension funds, particularly well diversified and well funded schemes such as WYPF. Even if the significant out-performance of bonds by equities over a very long period is to be less pronounced in the next few years, a ‘balanced’ approach such as that followed by WYPF is likely to give competitive returns in the long term.