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IPE special report May 2018

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Cumbrian pensions funding drops to 56%

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  • Cumbrian pensions funding drops to 56%

UK - The Cumbria County Council pension fund had a 56% funding level at the end of March 2009, according to figures from the council's statement of accounts.

The final accounts for 2008/09 showed the financial crisis resulted in the value of the fund falling by £202m (€231m) over the financial year from £1.195bn to £993m, because although income from the scheme investments was £32m net of tax, the total value of the investments fell by £245m.

Cumbria County Council revealed in the pension fund accounts that at its last triennial valuation in March 2007 the scheme had a funding level of 81%, causing the council to adopt a "cautious approach" to increasing contributions which might clear the deficit over a 20-year period.

Since then however, the report noted, the funding level had deteriorated to 70% at March 2008, with an estimated deficit of £505m, but by 31 March 2009 an interim valuation revealed the scheme could only cover 56% of liabilities as its deficit had increased to an estimated £756m.

Cumbria admitted "the funding level has been adversely affected by reduced index-linked gilt yields as well as by investment returns", and confirmed the fund's actuary had been commissioned to provide quarterly updates of the funding position ahead of the next triennial valuation in March 2010.

The asset allocation of the fund at the end of the financial year showed 32.8% of the fund was invested in equities, both UK and overseas, while 11.6% was in fixed interest securities with the majority in corporate rather than government bonds.

In addition, the council had 6.4% in property investments, while 1.1% was in cash and money market instruments and the remainder, 48.1%, was held in pooled investment vehicles such as unit trusts and managed funds. (See earlier IPE article: Cumbria introduces global equity and alternatives focus)

Cumbria employed eight investment managers at the end of March, and Legal & General Investment Management held the largest proportion of the funds assets - 35.2% - in a passive mandate, while GMO UK had 12.1% in overseas equities and Newton managed around 12% in global equities.

Blackrock is the alternatives manager with an 11.5% share of the fund, and Schroders managed a 11% UK equity portfolio, while Insight Investments ran a 10.7% allocation to bonds and Credit Suisse Property Management, now Aberdeen Property Investors, was taking on the property portfolio.

The accounts also revealed BNY Mellon had been employed as a currency manager for 0.7% of the fund, appointed alongside Newton and Blackrock following a restructuring of the scheme in 2007/08, but the council confirmed that contract was terminated in April 2009 following an annual performance of -40.9%.

Cumbria stated: "The Pension Committee has decided to end the mandate with BNY Mellon, the currency manager, from April 2009. The currency units have been redeemed for cash value £6.4 million and returned to Cumbria County Council on 15th April 2009, and the management of the passive currency overlay will be transferred to an alternative manager during 2009."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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