UK - The London Borough of Hackney is seeking a new provider of pension administration and pension payroll services ahead of the expiry of its current contract with the London Pension Fund Authority (LPFA) next year.

Hackney outsourced the administration for its £646m (€820m) pension fund to the LPFA in April 2003 for an initial period of five years - with the payroll services contract awarded in 2004 - however following a review of the existing arrangements last year the council exercised its option to extend both contracts until March 31 2009.

The council decided at that time the "potential level of disruption to changing the existing arrangements in time for the end of the contract at 31st March 2008 was too great" because 2007/08 was the triennial valuation year for the fund, and would also see the introduction of the new Local Government Pension Scheme (LGPS) regulations.

Minutes from the council's latest Pensions sub-committee meeting in June revealed the review of the scheme's existing arrangements culminated in four possible options for the future:

 

Extending the contract with the LPFA for a final year; Sharing services with other local authorities; Bringing the administration in-house, or Outsourcing a new payroll and administration contract.

According to documentation from the meeting, the committee dismissed an extension of the LPFA contract as "being costly and unnecessary" as the price of the existing contract is index-linked, while shared services was described as "still in relative infancy and not a viable option for the fund at this stage".

Hackney confirmed the two remaining options of outsourcing and bringing the administration in-house were "explored in detail with some detailed costing" including a study of existing arrangements in other London boroughs.

The study concluded despite a preference for in-house administration by 21 London boroughs and a limited number of external providers with local authority experience, there "could be significant cost savings" for the fund if it re-tendered the contract - potentially in excess of £200,000 over the life of a five-year contract.

Hackney has subsequently issued a tender notice for the provision of the combined services for an initial period of five years, but with the possibility of a three-year extension.

Meanwhile, the council's search for an actuarial consultant is ongoing, with interviews for the position expected to be completed by September, and the pension fund's recent appointment of a Global Tactical Asset Allocation (GTAA) manager and a currency overlay mandate has led to revised asset allocation benchmarks.

A report presented to the pensions sub-committee confirmed the appointment of Barclays Global Investor (BGI) for the GTAA mandate and FX Concepts for the currency overlay are "currently going through due process" but once this is complete it intends to phase the investment of the mandates in "two or three stages over a three to six-month period" in an effort to "mitigate the impact of market timing".

The funding of the two new asset classes was intended to be drawn primarily from cash reserves, although with some reduction in UK equities if necessary. (See earlier IPE.com article: Hackney adopts GTAA and currency overlay)

As a result the fund has revised its benchmark allocation so that equity exposure has reduced from 49% to 46% and property has been cut from 13% to 12% to balance the new 4% allocation to other investments, although the bond and overseas equity weightings remain stable at 17% and 21% respectively.

Meanwhile latest figures for the first quarter of 2008 showed the value of the Hackney pension fund dropped from £699m to £646m following a return of -7.4%, although this was a slight outperformance of the benchmark result of -7.5%.

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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