UK - Surrey County Council has revealed its pension fund lost £463m (€544.5m) in 2008-09 as a result of the financial crisis, as the investment return on the fund was -24.7%.

Figures published in the draft annual accounts of the pension fund showed the value of the scheme, which has a total of 67,800 members, decreased from £1.72bn at 31 March 2008 to £1.348bn a year later.

Although the report noted the lowest point of the fund was at 9 March 2009 when the value slipped to £1.26bn, it said a recent recovery in asset values, following improved equity markets, means the value of the fund is "around £150m higher than it was on 31 March".

The pension fund's return of -24.7% for the year was behind the local authority average of -19.9%, which it attributed primarily to "the impact of hedging 50% of the exposure to US dollars, the Euro and Japanese Yen. This has detracted from performance by -4.4%".

Wiithout this hedge, the report suggested the pension fund would have returned -20.8% over the year, only marginally behind its customised benchmark of -20%.

Philip Walker, head of finance at Surrey Council, noted in his introduction to the draft report that the scheme had not made any changes to its asset allocation strategy or manager selection, although it had appointed Mercers as the scheme's investment consultant in September 2008. (See earlier IPE article: Surrey to seek advice as WW leaves LA market)

But while he noted the "long-term nature" of the fund's liabilities he admitted that with the next triennial actuarial valuation scheduled for 2010 the fall in asset values has raised some concerns.

Walker revealed that based on the assumptions in the 2007 valuation the scheme should have been valued at £2bn by March 2008, so the fund is already behind schedule by £600m without factoring in "the ongoing improvement in longevity rates or the impact of changes in the discount rate used to value liabilities".

An interim actuarial valuation of the fund in December revealed the funding level had dropped from 79% in March 2007 to 53% at the end of December 2008, while the FRS17 report for the end of March 2009 showed the deficit had increased from £299m to £448m over 12 months.

Walker said in the draft report that a "favourable movement in gilt yields" could wipe out the deficit without the need for an increase in asset values, and admitted "between now and 31 March 2010 we will be looking very carefully at how we can mitigate the impact of the 2010 actuarial valuation".

However, as the aim of the Funding Strategy Statement is to keep contribution rates stable and affordable while making prudent assumptions, "we may have to take some extreme measures to enable all three of these aims to be achieved", and confirmed the council will be consulting with employers and the actuary later in the year on the assumptions used in the 2010 valuation.

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