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Westminster deficit hits £331m as fund drops 24%

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  • Westminster deficit hits £331m as fund drops 24%

UK - Westminster City Council has revealed the deficit in its pension fund had more than doubled to £331.9m by the end of March 2009.

Figures from the council's draft annual accounts for 2008/09 showed the value of the pension fund dropped 24.54% from £640.6m at 31 March 2008 to £483.4m a year later.

The report said the fund's managers delivered a return of -24.4% against a benchmark of -23.5%, bringing the annual return since 2006 down to -6.8%.

Following the drop in value, an updated interim actuarial valuation by Hewitt Associates showed the funding level of the scheme had fallen from 76.6% in March 2008 to 53.3% 12 months later as the deficit increased from £158m to £331.9m.

Westminster noted in its report that since the last triennial actuarial valuation in 2007 employer contributions to the scheme were "increasing by 1% per annum" over the three years to the next valuation in March 2010, which it claimed will then confirm "whether the current planned increases in contribution rates will be sufficient to meet the long-term liabilities of the pension fund".

Earlier this month, however, the Department for Communities and Local Government (DCLG) issued an informal consultation on two alternative approaches for funding the LGPS from 2010 which meant local authority pension funds might no longer rely on a 100% funding target.

The consultation noted the 100% funding level could impose "significant short-term cost pressures" in light of the economic downturn at the next valuation, and suggested  the use of a financing plan or local funding targets instead. (See earlier IPE article: CLG consults on funding target changes to LGPS)

Meanwhile, findings from Westminster's draft accounts showed the asset allocation of the fund at March 2009 was 34.74% in UK equities, 29.82% in bonds, 33.62% in global equities, and 1.82% in cash and other investments.

Over the year, the figures showed, of the five external managers Alliance Bernstein, a global equity manager, produced the worst performance for the fund with a return of -44% against a benchmark of -31.6%, while Newton, the other global equity manager, returned -30.7% although this was above its benchmark of -31.5%.

Majedie and State Street, which run Westminster's UK equity portfolio, returned -17.6% and -28.3% respectively against a benchmark return of -29.3%, while Insight Investment's bonds portfolio produced a yield of -4.4%.

The draft results were presented to the council in June, and the confirmation of the poor performance in 2008/09 follows an earlier decision by the superannuation investment committee in March to consider the use of a framework agreement to allow quicker mandate changes following concerns about manager performance. (See earlier IPE article: Westminster mulls frameworks amid manager concerns)

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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