Assembly Members' Pension Scheme (Northern Ireland) Annual Report - Period 1 April 2001 to 31 March 2002

CONTENTS

The Trustees' Report

The Assembly Members Pension Scheme (NI) 2000
Aim of this Report
How the Trustees of the Fund are Appointed
Trustees Names
Information about the Trustees
Trustee Meetings
Other Parties Appointed in Connection with the Fund as at 31 March 2002
Income of the Fund
Actuarial Valuation
Membership
Preparation and Audit of Annual Accounts
Summary of Financial Information

The Compliance Statement

Benefits
Tax Status of the Fund
Funding Standard
Investments

The Investment Report

Investment Manager
Basis of Remuneration
Investment Policy
Investment Performance Objectives and Expected Return
Additional Voluntary Contributions (AVCs)

THE TRUSTEES' REPORT

INTRODUCTION

The Assembly Members' Pension Scheme (NI) 2000

The Assembly Members' Pension Scheme (NI) 2000 (AMPS) provides benefits for Members of the NI Assembly through the basic scheme and Ministers and Office Holders through the Supplementary Scheme. Both schemes are operated on an 'opt out' basis, meaning that all Members, Ministers and Office Holders are members of the scheme from the date they become MLAs unless they make a specific option not to be.

The main benefits of the scheme are:

• an immediate pension of one fiftieth of final salary for each year of service on retirement at age 65;

• an immediate pension before retirement age subject to certain service restrictions;

• an immediate pension on retirement at any time on the grounds of ill health;

• an abated pension paid on retirement at any time on attainment of age 50 and completion of not less than 15 years service;

• an actuarially reduced pension paid to most former Members at any time after age 50;

• a five eighths widow/ers pension;

• children's pensions (at the rate of one quarter of the basic or prospective pension of the Member if there is one child or three eighths if there are two or more children OR if there is no surviving spouse at the rate of five- sixteenths of the basic or prospective pension of the Member for each eligible child not exceeding two);

• a lump sum death gratuity on death in service equal to three years salary with provision for more than one nominee;

• the purchase of added years;

• transfer of pension rights (into and out of the scheme);

• the opportunity to contribute to an AVC scheme with an outside provider.

The legislative background to the AMPS can be found at Annex A.

Aim of this Report

In order to conform to best practice in relation to reporting requirements the Trustees must disclose actuarial and other accounting details to all members of the Fund, within seven months of the end of the accounting year (i.e. by 31 October each year).

The Trustees are pleased to present this report, which has been prepared in accordance with best practice and covers the period from 1 April 2001 to 31 March 2002. The purpose of the report is to describe how the Fund and its investments have been managed during the year.

How the Trustees of the Fund are Appointed

Part B, Section B2 of the Assembly Members' Pension Scheme (NI) 2000 states that the Assembly shall by resolution appoint not more than five members of the Assembly to be the Trustees of this Scheme.

A person appointed as a Trustee -

a) may resign from office by notice in writing to the Presiding Officer;

b) may be removed from office by a resolution of the Assembly;

c) shall, without prejudice to sub-paragraph (b), cease to hold office on the expiry of six months from the date on which he ceases to be a member of the Assembly.

Trustees Names

Mr Denis Watson MLA (Chairman)
Mr Mervyn Carrick MLA 
Mr John Dallat MLA
Mr John Kelly MLA
Mr David McClarty MLA

Information about the Trustees

The Northern Ireland Assembly Members' Pension Fund shall be vested in and administered by the Trustees. The Trustees shall hold the assets comprised in the Fund upon trust in accordance with the provisions of the AMPS.

The procedure of the Trustees shall be such as the Trustees may determine.

The quorum for any meeting of the Trustees shall be three.

The Trustees may act by a majority of those present at any meeting.

The Trustees may employ such staff and obtain such professional advice and services
as they think necessary in connection with the performance of their functions under this Scheme.

The expenses of the Trustees in the exercise of their functions shall be defrayed out of the Fund.

Trustee Meetings

Six regular Trustee meetings were held during the period ending 31 March 2002, with a number of additional meetings being held for specific purposes.

Other Parties Appointed in Connection with the Fund as at 31 March 2002.

The Government Actuary is appointed on a statutory basis while the Trustees were responsible for the appointment of the Investment Manager. All parties remain in place at the date of the report.

Any queries about pensions or any further information required regarding the day to day administration of the Scheme should be sent to the Secretariat at the following address:

Members Pensions Unit
Assembly Personnel Office
Annexe C
Dundonald House
Stormont Estate
Belfast
BT4 3SF

Tel: 028 9052 5287

Fax: 028 9052 0871

E-mail: evan.hobson@niassembly.gov.uk
alison.whitaker@niassembly.gov.uk
roy.o'neill@niassembly.gov.uk
kathryn.mccartney@niassembly.gov.uk

Income of the Fund

The income of the Fund is derived from four main sources:

i. Contributions - from Members and Holders of Qualifying Office

ii. Investments - see the Investment Report

iii. Transfers In - Members who have pension benefits in the scheme of a former employer or in a personal pension plan may be able to transfer in the benefits to the Scheme

iv. Consolidated Fund - a Consolidated Fund contribution, calculated in accordance with the recommendations contained in the Actuary's report under article S2 (4b), shall be paid into the Fund out of money appropriated by Act of the Assembly for that purpose.

Actuarial Valuation

The Government Actuary is required to make a report on the general financial position of the Scheme as at each subsequent reporting date, not more than three years after the date last agreed or fixed, and to recommend to the Assembly the future rate of the Consolidated Fund contribution. The first valuation of the Scheme will be conducted at the start of the 2002 -2003 financial year and will be based on the standing of the Scheme as at 31 March 2002.

The Trustees have no authority to change this recommendation.

The Government Actuary's "Actuarial Statement", which detailed the financial position of the Fund as at 1 July 2001, concluded that the resources of the scheme were likely, in the normal course of events, to be sufficient to meet the liabilities as they fall due. This conclusion was based on the assumption that both the Member's and employer's contributions would remain as at present i.e. 6% and 18% respectively.

Copies of the Actuarial Statement are available from the Secretariat.

Membership

The membership of the fund at 31 March 2002 was as follows:

Current members 98
Deferred members -
Retired members 1
Widows 1
Widowers -
Children -

The benefits payable during the year amounted to £ 1,588.00. There were no changes to the benefit regulations during the period or increases to pensions in payment.

Preparation and Audit of Annual Accounts
Summary of Financial Information

Total Fund at 1 April 2001: £2,163,543

The Report for the period ended 31 March 2002 including the attached Investment Report and Compliance statement is approved on behalf of all the Trustees by:

Denis Watson MLA
Chairman of Trustees

THE COMPLIANCE STATEMENT

Benefits

All pensions paid in the year were authorised under the appropriate Act and thus made in accordance with the regulations of the Fund. No alterations were made to regulations governing the payment of pensions during the year.

Tax Status of the Fund

The Northern Ireland Assembly Members' Pension Fund is a statutory pension scheme within the meaning of Chapter 1 Part XIV of the Income and Corporation Taxes Act 1988 and is an 'approved scheme' for the purposes of accepting transfer values.

Funding Standard

The Northern Ireland Assembly Members' Pension Scheme is not subject to the Minimum Funding Requirement of the Pensions Act 1995. Accordingly, it is not appropriate for the "MFR" actuarial statement, which is set out in regulations and used by schemes that are subject to MFR provisions, to be adopted for the Northern Ireland Scheme.

Nevertheless, the Trustees have asked the Government Actuary to provide periodical reassurances that this level of funding would be met.

Investments

All investments are in holdings that are permitted by the regulations of the Fund. Although the Trustees cannot direct the investment strategy of the Fund in which the Assembly Members' Pension Scheme (NI) 2000 invests, nevertheless, it will consider Socially Responsible Investment policy issues when comparing two providers who are otherwise of equal preference.

THE INVESTMENT REPORT

YEAR ENDING 31 MARCH 2002

Investment Manager

Royal London Asset Management (RLAM) remains the Scheme's Fund Manager. RLAM is an investment management subsidiary of the Royal London Group which was founded in 1861. RLAM was launched in 1989 as a dedicated investment company to provide investment management services to both internal and external clients, with particular focus on the UK pension fund market. Total assets under management as at 30 June 2000 were £18.5 billion, managed on behalf of clients who include pension schemes, retail unit trusts and life assurance and general insurance funds. RLAM responsibilities include:

(i) carrying out all the day-to-day functions relating to the management of the Fund;

(ii) the allocations of the balanced portfolio between categories of investments and for the selection of individual stocks within each category of investment;

(iii) deciding whether it is appropriate to retain or realise individual investments within the portfolio;

(iv) exercising the investment powers in such a way that will give effect to the principles contained in the Statement of Investment Principles (SIP), so far as is reasonably practicable, and in particular will have regard to the suitability and diversification of the investments within the guidelines set by the Trustees.

Basis of Remuneration

Royal London Asset Management is paid an annual management fee based on the value of the portfolio. The fee paid over for this accounting period was £ 11,817.

Investment Policy

The Investment Policy of the Trustees of the Assembly Members' Pension Fund is detailed in the Statement of Investment Principles which will be reviewed every year and is available on request from the Secretariat.

The size of the Scheme's assets, as a new scheme, is not yet sufficient to allow a widely diversified portfolio of investments were these assets to be invested directly in bonds, stocks and shares. Therefore, until the assets become sufficiently large, the Trustees believe that the most cost effective way on investing is to use one single pooled fund run by an independent management company.

Investment Managers Report

Review of 12 months to end Quarter 1, 2002

Economic Background

The period under review began with a marked deterioration in global growth but ended with evidence pointing to an improvement in the economic environment and a resumption of growth in most major economies. The economic downturn was driven by cutbacks in corporate investment leading to profit warnings and downgrades from companies in sectors such as telecoms and IT, with corporate confidence receiving a further unwelcome knock from the terrorist attacks in September. The relative brevity and shallowness of the downturn in the US and Europe was largely the result of a monetary response from central banks led by the US Federal Reserve, which reduced rates from 5% to 1.75% over the period. This ensured that consumer spending continued to grow and thus helped to stabilise aggregate demand.

Nevertheless, this background resulted in poor returns to investors from most asset classes over the period. Despite a rally towards the end of 2001, the main equity markets posted negative returns during the 12 months under review. The worst performance came from Japanese (-20.8%) and European (-7.4%) equities, followed by the UK (-3.2%) and US (-0.7%). The exception was the Far East, which returned 12.6% over the period as a result of a strong rally after October. UK Gilt's returned 1.6% to investors and UK Corporate bonds, 5.4%.

Strategy

The Assembly members' Pension Fund began the period overweight in equities (particularly the UK) and underweight in bonds and cash - although with a defensive positioning within the equity holdings reflecting the depressed environment for corporate earnings and slow global growth. RLAM's view during summer 2001 was that US interest rate cuts had stabilised global demand and that a resumption of growth looked imminent. The events of September 11, while in retrospect merely delaying the recovery increased the risk at a time of protracted recession. In response, the weighting in UK Equities was reduced and the proceeds reinvested in Gilt's and Corporate bonds. The fund did, however, remain overweight to equities throughout the period, albeit to a smaller degree. This positioning proved beneficial towards the end of the year, as it became clear that the rapid response of the monetary authorities had supported demand and the market began pricing in an economic recovery during 2002. Exposure to the Far East was increased, on the expectation that the highly cyclical nature of these markets would lead to a recovery in fortunes, which has been realised.

Performance

Over the 12 month period the Pooled Balanced Pension Fund returned -7.0%. The median return for the CAPS Pooled Balanced Pension Fund Universe was -2.8%. The under-performance of the fund relative to its peer group was attributable to an asset allocation stance overweight to equities early in the period combined with a negative contribution from stock selection in UK and US Equities.

Future Investment Performance Objectives and Expected Returns

In light of the poor performance of the fund during the past financial year, the Trustees requested clarification of the Royal London Asset Management (RLAM) investment strategy for the coming year. RLAM have reiterated their commitment to a growth investment management style and take a long-term view of markets. Basic tenets are:

Active Management

The objective is to identify assets that will provide greater relative returns to investors over a twelve-month period. The portfolio is then positioned overweight in these assets. Not all forecasts are borne out by events and while aiming to add value over time it is unlikely to achieve this over each and every shorter term.

Exposure to Equities

The Balanced Pension Fund has an average exposure to equities of over 80%. Given that equity markets have declined by more than a third in the recent past, investments in a typical balanced fund will have suffered significant negative returns even if it had performed in line with its peers or better. Although equities have historically offered higher returns to investors over longer time periods, this has been in compensation for the higher risk and greater volatility of returns.

Following points raised by the Trustees, RLAM have indicated the following Investment Strategy:

Current Strategy for Balanced Funds

The improving economic situation and the expected recovery in company profits should provide a favourable background for real assets over the medium term. From present levels, RLAM expect equity returns on a 12-month basis, although they do not expect a repeat of the stellar returns of the 1990's.

The UK Equity market is the least sensitive to economic recovery due to high weightings in oil and drug companies. RLAM expect the UK market to appreciate modestly in the coming 12 months but the most impressive profit recovery to be in Europe. The US is also expected to show significant recovery in profits; however, high valuations have inclined them to decrease exposure there in favour of higher weightings in the overseas markets.

At a stock level, weightings within the equity portfolios towards economically sensitive areas such as basic and general industrials have been increased, especially to those companies geared to a recovery in the US.

Investment in Fund Management Resources

Whilst one of the strengths of RLAM has been the stability and continuity of its investment philosophy, process and personnel, the need for continued investment in people and systems is recognised. A number of new posts have been created to manage assets on behalf of clients. In particular, recognising that UK Equity Stock selection has been a significant contributor to the recent under-performance of the Balanced Fund has led to steps being taken to formalise the UK Equity Team structure.

Fund performance continues to be monitored closely on a quarterly basis.

Additional Voluntary Contributions (AVCs)

Members of the Scheme were required to pay retrospective contributions (9%) in respect of the period 1 July 1998 to 12 May 2000. These contributions were collected during the 2001 - 2002 financial year. Due to Inland Revenue restrictions on the percentage of income that can be contributed to pension, the facility to make additional voluntary contributions was only available to a small number of Members throughout the period of this report.

During this period, the Trustees completed the process of appointing an AVC Provider in the form of Clerical Medical. Ten members indicated their intention to take advantage of the facility to pay additional voluntary contributions with effect from 1 April 2001 or from the date when all of their retrospective contributions have been paid, which ever was the later.

LEGISLATIVE BACKGROUND TO THE AMPS (NI) 2000

ANNEX A

The Assembly Members' Pension Scheme (NI) 2000 was set up on 13 May 2000 by Determination made by the Secretary of State under Section 48 of the Northern Ireland Act 1998 by virtue of paragraph 9 of the Schedule to the Northern Ireland Act 2000.

The Fund provides for pensions and gratuities to be payable to, or in respect of, persons who have ceased to be members of the Northern Ireland Assembly.